Most of us can’t wait until the day that we are able to retire and hopefully without making any retirement mistakes. What many individuals do not take into consideration is that retirement is not a stage in life to take lightly. You must plan ahead wisely to have enough money saved to last the rest of your life. It’s easy to put off thinking about it, but when the time comes, if you are not adequately prepared you might end up without any savings putting yourself in a position of having to continue working. That’s not a very enjoyable retirement!
It’s best to start planning as early as possible to avoid any pitfalls. Below is a list of financial mistakes that are commonly made by retiree which we hope you avoid!
This is the worst thing that you could do in anticipation of retirement. You must plan ahead as early as possible to avoid not having enough money to live on. Ideally you want to start planning in your 20s but if you can’t do that, then start now. Seriously, right now. If you plan ahead wisely, retirement can be a time to enjoy and to relax. The earlier you plan and save, the more interest you’ll earn and the power of compounding will be exponentially greater.
If you don’t choose a beneficiary there’s bound to be major stress and issues when you are gone. To avoid lengthy and expensive court issues, it is best to choose a beneficiary as soon as possible. You can leave instructions in addition to selecting the beneficiary of any money or estate left after your passing. Your beneficiary can take care of other financial arrangements after you are gone, so be sure to choose wisely. Think with your head, not your heart on this one.
Inflation rates change. It’s inevitable and it happens every year. Things that were fifty cents twenty years ago might cost a dollar or even more today. Think the same things about your money. Your investments of yesterday might be worth less today (hopefully more but don’t count on it). Bottom line? Do not plan to live on money that would have supported you fifty years ago. So whenever you are planning investment returns, always account for your returns being at least 1-2% less due to inflation rates.
Investing your hard earned money in something that does not have proven results can ultimately lead to a financial windfall. This is a poor strategy so try to avoid it at all costs. A good rule of thumb is the older you get, the less your risk tolerance should be. Stick with investing in things that are known to make money over time. Examples might be annuities, bonds, “safe” stocks, CDs, Treasuries, etc etc. Retirement is not something you want to leave to chance. You are gambling with your future so make it a wise gamble.
This is something that everyone should have no matter how much you don’t want to think about it. If you do not leave a will, it will make life difficult for your family. If things aren’t laid out in plain English as to how your estate and money will be divided then there is a 100% chance something will go wrong. Make sure that your loved ones have several copies of the will and make sure that the language in the document is clear, legally binding, and leaves no questions as to who gets what. Be sure to outline precisely what you want to do for all of your assets including property and loose valuables. We highly advise you seek out an estate lawyer for this.
To navigate the complex world of investments and retirement planning, you might need a trained professional with a good track record to help guide you. Don’t try to invest without the aid of someone that knows which strategies will work best for your individual needs. Make sure your financial advisor is licensed and has a good deal of proven experience. There are unfortunately tons of predators in this line of work. Do your homework and use good judgment.
It may seem like a good idea to go ahead and retire early so you can enjoy a few extra years, but can be a big mistake. Before you make this decision remember that you drastically decrease your Social Security benefits so plan on that income not being available. Only you can decide when you’d like to retire but make sure you know exactly where you stand financially before pulling the trigger. Good rule of thumb? Most people can’t retire early. Chances are, neither can you.
As the saying goes, it is important to not put all of your eggs in one basket. If something happens to one of your investments you need to have others to carry you through. If you put all of your savings into one investment you run the risk of losing everything. Always invest in multiple areas with the help of a professional that knows your goals. We’re not saying you can’t own all stocks which can be a sound strategy. Just don’t own ONE stock. Make sure you are spread across multiple industries and sectors. If you invest in real estate, don’t own ONE property. Have a few, etc etc.
Look, this is an ideal situation, there’s no doubt about it. If you can live off of your interest only that means you’ve accumulated a considerable amount of principal (in the $3 million+ range). However, this isn’t likely so it’s OK to plan on living off of your principal as well. The main message we’re giving you here is obviously to save up as much money as you possibly can. However, you want to live a comfortable life so it’s OK to allow for some or all of your principle to expire in your retirement years.
If you get into a tight situation, you may be tempted to refinance your home. This is not a great idea, especially when you are approaching retirement. A house shouldn’t be looked at as an investment. It guarantees that you have a roof over your head and it’s a part of who you are as a family. Plus it’s something you can pass down to your children. If you refinance and are unable to pay back the loan, you will lose your home and will have to pay for additional housing you may not be able to afford. There are alternatives designed just for seniors. It would be wise to consider your options.
You are not guaranteed great health later in life. In fact, most people will have some serious medical issue during their retirement years. It is very wise to plan for such situations so that you are not left helpless. Medical expenses can eat up your entire savings in a short amount of time. Always make sure that you’re are properly insured with supplement plans and make a plan for long-term care in the event some serious illness affects you.
You absolutely need insurance to cover expensive medical procedures and even routine costs. Medical debt is one of the number one issues facing aging adults. The possibility of being broke due to medical bills is a real issue. Do not leave yourself or your family in debt. Make sure you are properly insured and that includes gap coverage as well. Also look into term and whole life insurance (term is cheaper and more likely the best option the later you wait).
You always need a financial plan when trying to save for retirement. If you are investing by the seat of your pants, you might end up broke and very disappointed later on. Investing for your future requires careful thought and planning. Try to make sure that you consult a certified professional to map out a plan that is right for your needs.
Although they may mean well, family and friends aren’t always the best sources of advice. The best rule we can tell you is this. You and you alone are the best person to decide how to handle your money. If you’re going to take advice, hire a financial advisor who doesn’t have any type of bias whatsoever. Friends can suggest investment ideas that you should consider. There’s nothing wrong with that. Just know it is your responsibility to manage your decisions, and you should probably run these suggestions by a professional before rushing into anything.
The amount of Social Security most Americans receive after retirement is not enough to cover all of their expenses. This is another reason that you have to plan ahead and have a solid strategy. Also, Social Security has an uncertain future and should not be relied upon to provide for you during your retirement years. Bottom line? We can’t stress this enough. Start planning NOW if you haven’t already. Social Security is NOT secure.
When you pass away, you don’t want your family having to make complicated decisions regarding your funeral and having to pay out of pocket to cover those arrangements. During one of the most challenging times in life, this can be overwhelming. Make sure you make pre-arrangements so that when the time comes they know exactly what you want and will not have to worry about having to pay for or plan it. If you want to be buried, specify it. If you want ashes scattered in an ocean, specify it. Leave no questions to be asked.
As mentioned several times before you need to seek out professional advice when it comes to retirement planning. If you try to invest on your knowledge alone, you are leaving your future to chance as well as possibly leaving your family in a financial bind. The hardest part of getting a pro is choosing the right one. Our best advice is to try and find someone who does not work on commission. That’s a solid first step. The further away they are from making money based on what they sell you, the better.
It is a great idea to have a retirement account such as a 401K that can accrue interest and add to your overall nest egg. Start this account as early as possible to get the maximum return on your money. Do not withdraw your funds even when you get in tight situations. Save the money for your retirement. There is usually a stiff penalty for withdrawing your savings early. Look into IRA’s and Roth IRA’s as well. If you are self employed look into profit sharing and Keough plans.
Retirement years are not a time to be risking your money on iffy investments and get rich quick schemes. Make sure that any investing you do is relatively safe and leaves you to as close to “no chance” as possible. It’s better to have money stored under your mattress than floating out there in a startup that may or may not be in business in 3-5 years.
If you don’t settle your tax issues, it can leave a big headache for your family after you are gone. Just because you die does not mean tax problems just go away. The next of kin will be responsible for paying any outstanding debt you owe. It is vitally important that you take care of any issues before it becomes too late. There are tax professionals that can help you settle these issues in the right way and may help save you a good deal of money as well.