Putting off Retirement Planning until Later in Life
Retirement planning should be a priority, not an afterthought. It’s natural to assume that you are young and still have plenty of time to make sound financial decisions for your future, but that mindset could compromise your retirement security. Once you enter the workforce, it’s important to begin saving for retirement and investing wisely. This means that you should not only look for ways to maximize the funds you have now but also plan ahead for any potential bumps that could make reaching that retirement goal significantly more difficult.
Believing Social Security Will Provide Enough
Although Social Security is a valid source of income after retirement, it might not cover all of your expenses and needs. Social Security is currently estimated to cover just over one-third of a retiree’s income, leaving the other two-thirds to come from other sources, such as personal savings and investments. Even if you are expected to receive a generous Social Security pension, it’s still wise to plan for a long-term retirement.
Relying on Friends and Family for Financial Advice
It is tempting to take advice from friends and family when it comes to retirement planning, but this can lead to missed opportunities or costly mistakes. While your friends and family may have your best interests at heart, their financial knowledge and experience may not be adequate to ensure that you are making sound investments. Seek the advice of a qualified and experienced financial professional to help you in your retirement planning.
Investing Without Seeking Professional Help
For those who are new to investing, it can be intimidating to jump into the stock market without guidance. A qualified, experienced financial advisor will have the expertise to provide proper advice and guidance on the best investments for your current needs and retirement goals. Not only will they explain the nuances of investing, but they can also help you diversify your portfolio appropriately so that you have more of a cushion if certain investments don’t work out.
Not Saving for Unexpected Expenses
Retirement might seem like a time of financial stability and freedom, but it is not immune to unexpected costs, such as medical expenses. Be sure to start an emergency savings fund precisely for these types of expenses. This will ensure that your retirement savings remain intact in case of any unforeseen financial burdens that arise.
Hoping for Windfall Earnings
You may be tempted to wait for a miraculous windfall of money to help you get your retirement plan on track, but this is a risky approach. Even if you do come into extra cash at some point, don’t use it for retirement purposes without consulting a professional financial advisor. The odds of you seeing it again are slim and you may end up with a large tax bill or other financial obligations down the line.
Ignoring Required Minimum Distributions
Required Minimum Distributions, or RMDs, is a set of rules set forth by the Internal Revenue Service that necessitate required withdrawals from certain retirement accounts after age 70 ½. Failing to adhere to these regulations can result in serious penalties, so it is important to understand what they entail and plan accordingly.
Risking Too Much in a Single Investment
Diversification is key to any sound investment strategy. Taking a risky approach and putting too much of your retirement savings into one source can be a dangerous gamble if something goes wrong. Rely on the guidance of a financial professional who can guide you towards investments with lower risk and higher potential rewards.
Putting Investing Ahead of Other Financial Priorities
Investing can offer a great opportunity for building long-term wealth, but it shouldn’t be the only financial priority you have in retirement. A balanced financial plan will include saving for other expenses such as a home, travel, or major purchases. A financial advisor can help you identify these priorities and plan appropriately.
Not Having an Exit Strategy
Retirement planning should include not only how to get there, but also an understanding of how to manage the funds once you arrive. This includes an exit strategy, or a plan to sustain your retirement savings funds once you reach a certain age. This strategy should include ways to safeguard your funds and plan for inflation, as well as continued investment and growth opportunities to ensure the funds outlast your lifespan.