Given recent trends in longevity, there’s a good chance you could be retired for 20 to 30 years, which might mean you’ll be retired for a third of your life—or more! You’ll want to plan ahead and take steps to help yourself be financially secure, healthy, and happy for the rest of your life.
This post examines seven common retirement planning mistakes people make during their working years and how you can avoid them. First, we’ll look at two mistakes that people of all ages might make. Then we’ll focus on five additional mistakes that apply to people in their 50s and older.
Two Retirement Planning Mistakes To Avoid For All Pre-retirees
1. Not Saving Enough Money While You’re Working
The first mistake is not saving enough money while you’re working—a very common regret that retirees typically express. To help with this, put your retirement security on auto pilot by saving regularly, either through your retirement plan at work if you’re eligible or through an IRA with a reputable financial institution.
It’s best that you calculate how much you should save for retirement each year given your current age and when you want to retire. Many financial institutions offer online calculators that can help with this task. You can also consult a financial advisor if you need help. At the very least, contribute the maximum amount that your employer matches in their savings plan, if you’re eligible.
2. Not Taking Steps To Improve Your Health
The second mistake to avoid is not taking steps to improve your health. When retirees are asked what makes them happy in retirement, a very common answer is “good health.” As a result, you’ll want to take action to improve your nutrition, exercise more, maintain a healthy weight, get sufficient sleep, and eliminate unhealthy habits such as smoking or abusing drugs and alcohol. Take advantage of a wellness program if your employer offers it.
Avoiding these two mistakes can put you in a good position to be financially secure and healthy in your retirement years.
5 Retirement Planning Mistake To Avoid
Now let’s look at five mistakes that people in their 50s and older should address.
1. A Big Retirement Planning Mistake To Avoid For People In Their 50s Or Older
Once you reach your 50s, retirement is on the near horizon and you’ll need to do more planning to reach your goals. The biggest mistake is not spending time learning about the most important decisions you’ll need to make and also envisioning your life in retirement.
Consider it your retirement job, and give it the same focus and attention that you might have devoted to preparing for your working years. For example, you might have spent considerable time earning a college degree, obtaining professional credentials, and participating in on-the-job training. A good place to start training for your retirement job is to explore the issues discussed next in this post, so you can avoid making those mistakes.
2. Not Understanding Why You Want To Retire
Another common mistake to avoid is not understanding the reasons why you want to retire. Many people just assume that it’s the right thing to do at a certain age and slide into retirement without giving much thought to their actual life in retirement. Instead of this, you’ll want to answer the “who-what-when-where-why” of retirement.
The answers to those questions will help you understand important financial issues, such as how much money you’ll need in retirement and where you might live. It will also help you consider how you’ll spend your time, and what will make you happy in retirement.
3. Focusing Too Much On Investing and Overlooking Other Important Financial Decisions
Many pre-retirees confuse retirement planning with investing. While deciding how to invest your savings is an important task, there are other decisions that can be more important for your financial security. These important decisions include:
- When and how to retire (whether you’ll work part time for a while)
- When to start Social Security
- Where to live
- How to obtain medical insurance before and after you’re eligible for Medicare at age 65 and how much it will cost
Avoiding these mistakes can help prevent you from being poor in your retirement years.
4. Not Preparing A Spending Plan For Your Retirement Years
As you get closer to retirement, don’t just hope that things will turn out OK for you in retirement. Instead, develop a plan to balance the common-sense formula for retirement security:
- I > E, or retirement income greater than living expenses
This task has two components:
- Building a portfolio of retirement income, and
- Understanding your budget for living expenses, itemized by your “must have” and “nice to have” living expenses.
Addressing this potential mistake will go a long way to making your money last throughout your retirement.
5. Not Preparing For Frailty
It’s inevitable that most people will become less able to live independently in their 80s and beyond. Many people may need long-term care, which can be very expensive. All retirees should take steps to prevent financial losses by making mistakes or becoming a victim of financial fraud.
The best time to address these potential mistakes is when you transition into retirement. These decisions can help you determine whether you need to set aside financial resources for that period of life and even where to live. Addressing these potential mistakes can help you prevent being a burden on your children and others who may need to care for you.
Whew! It may seem like a lot of work to avoid these mistakes, particularly those that apply to people in their 50s and older. That’s why you’ll want to give it the time and attention it deserves. Your future self will thank you that you did a good job preparing for retirement.