Steer Clear of These 16 Retirement Mistakes In Your Golden Years
It’s impossible to get through a day without making a mistake. As error-prone people, though, it’s imperative to avoid making those mistakes that have us cursing ourselves a decade later.
When you make big bloopers in your youthful years or even mid-life, you have time to rebound. When you mess up majorly in retirement, you likely don’t have the same luxury.
If you only read one thing today, let it be this cautionary list that could spare you from an un-reboundable financial disaster. The stakes are too high to click away before finishing the slideshow. That one item you don’t see could be the catastrophic blunder you make.
1. Living Like an Inheritance Is On Its Way
Your dad could be Jeff Bezos, and you two might have the best relationship a father and child have ever had. Even then, living, working, and saving like you’re guaranteed to receive an inheritance would be foolish.
Ever heard of the Great Depression? How about the Cuban Revolution, MC Hammer, or Bernie Madoff? It would help if you only had a loose grasp of history to know how money can be quickly lost (or taken). Make yourself a self-sufficient retirement plan, and perhaps consider precious metals and burying cash in the backyard in case a depression hits or the Commies come for your loot.
2. Making Large, Risky Financial Bets Late in Life
For most, the late-life and even mid-life investing strategy is centered upon wealth preservation. While some degree of growth is always necessary, your risk tolerance should decline precipitously—retirement may be closer than it appears.
Some universal tenets of preserving wealth include diversifying your portfolio, investing in tangible assets, and purchasing index funds rather than higher-risk individual stocks. No matter how much you believe in Bitcoin, it should never comprise most of your portfolio.
3. Failing to Purchase Insurance
Ernst & Young cites purchasing robust insurance as the second most important means of preserving wealth. After all, there’s nothing like the gardener slipping and falling on your property to wipe out half a lifetime’s worth of savings.
E&Y recommends umbrella liability insurance and disability insurance, but it also recommends robust health and auto insurance. The sting of paying monthly premiums is nothing compared with the sharp, chronic pain of an uninsured catastrophe.
4. Retiring Too Early
Scenario A: You think you’re ready to retire at 63 but’d be cutting it close. So, you work two extra years and retire at 66, start drawing Social Security, and can see Croatia, Mykonos, and every other spot on your retirement itinerary without breaking a financial sweat.
Scenario B: You decide to gamble and retire at 63, only to find out at 73 that you did not save enough money. So, at the ripe age of 74, you have to take a position corralling carts in a Winn-Dixie parking lot just to pay the bills. This is the danger of retiring too early.
5. Not Investing Your Retirement Savings
If you haven’t heard, the value of the U.S. dollar is sinking faster than a mafioso who talked to the Feds. You are tying cement shoes to your savings if you let it sit in a bank account or waste away as cash under the mattress.
You don’t have to greedily seek unsustainable returns through stocks or other risky investment vehicles. Even putting your money in a high-yield savings account is better than settling for the barely existing interest rate of a standard checking or savings account.
6. Making a Large Purchase Just Before Retirement
When you buy a boat in your 40s, you have a couple of decades to recognize the folly of your ways and work that took us off to make up for the loss. When you purchase a boat at the precipice of retirement, you may have no recourse if the splurge sinks you financially.
Speak with an objective financial advisor before making any significant purchase before or during retirement. While some large purchases (like a buy-low real estate opportunity) can bolster your financial security, others can be catastrophic.
7. Telling Yourself Retirement Is a Lifetime Away
You could be forgiven for listening to the pop songs that tell you we’re going to live forever. We’re not; time only accelerates as you get older (if you haven’t noticed).
The time you should retire will be here sooner than ever imagined. Whether you can financially retire when that time comes, however, will depend on whether you can acknowledge that your 66th birthday will be here sooner rather than later.
8. Leaving Meat on the Bone of Your Retirement Accounts
The most financially secure among us take full advantage of retirement-specific investing vehicles like IRAs, Roth IRAs, and 401(k)s.
While there are generally limits on how much money you can invest in these sorts of tax-deferred resources, the limits are rarely high enough that a prudent saver cannot meet them. Take full advantage of maximum contribution limits, as Dave Ramsey would do.
9. Letting Tax-Protected Retirement Accounts Be the Extent of Retirement Savings
Human nature is to do the bare minimum, especially when the act in question is distasteful. Many of us find it challenging to put money aside for later, so we might be inclined to max out our tax-deferred retirement accounts and call it a day.
Here’s a tip: The more money you stash away in IRAs, 401(k)s, index funds, and high-yield savings accounts, the sooner you can retire. It is that simple, so don’t be satisfied with the bare minimum.
10. Not Considering Retirement-Specific Benefits When Evaluating Jobs
While salary commands the headlines on job postings, don’t overlook those benefits. In particular, look at retirement-specific benefits offered by prospective employers, including but not limited to 401(k) options and contribution matching pledges.
When an employer matches your retirement contributions, it is free money in the pockets of future you. If you aren’t thinking of this as (an arguably more valuable form of) added salary, you need to reorient your perspective.
11. Not Paying to Consult a Financial Planner
If you are truly one of those self-taught financial gurus, you might be able to form a sound retirement plan without help. Those who feel lost or uncertain about their retirement plan, though, generally benefit from the help of an expert in the financial space.
You may get a detailed financial plan from hiring a pro, but you might also receive peace of mind that you’ll never get on your own.
12. Over-Inflating Your Retirement Savings
The declining value of a dollar means that your savings don’t go as far as they used to. Even those with $1 million or more saved might need to evaluate their lifestyle and face the fact that seven-figure savings might not sustain them through retirement (at least not without a lifestyle alteration).
Continually monitoring the effects of inflation and the cost of goods can help prevent your oasis of savings from drying up before you pass on.
13. Failing to Take Advantage of Employer Match
Note that, in some cases, employers match a certain amount of 401(k) contributions per paycheck. Therefore, you would want to be careful not to max out your annual 401(k) contributions early in the year, as this may mean voluntarily turning down your employer’s contributions.
When an employer offers you money with no strings attached, you say yes.
14. Over-Relying on Tax-Deferred Investments
While most financial advisors will encourage you to take full advantage of tax-deferred investments, placing all your retirement savings in deferred accounts can expose you to an unsettling reality.
If you kick the (tax) can down the road rather than picking it up, you’ll find a daunting mountain of cans when you finally reach the end of the road. While tax deferral makes sense for several reasons, there is also value in having already paid taxes on some of your savings.
15. Day Trading Your Retirement Savings
Most wealthy retirees earn a significant portion of their wealth by investing in stocks. However, those who rely solely on the stock market eventually get burned over a long enough timeline.
If you fancy yourself a day trader immune to the market’s well-established volatility, you’re in for a rude awakening when the next recession hits.
16. Entering Retirement Under a Mountain of Debt
Ideally, you’ll be able to retire debt-free, or at least with only good debt to your name. You will likely no longer have the option or energy to work long hours to whittle away at your debts, and so holding high liabilities means holding high risk.
If you suffer an unexpected illness or other financially straining circumstances, your debts will quickly become far less tenable than they first appeared.
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