How should I invest for retirement? And during retirement? There’s a lot of great advice to answer these questions – a wealth of strategic financial tips for nest eggs of all sizes. But equally important is what not to do. Below are 3 retirement planning mistakes—avoid them at all costs.
3 Costly Retirement Mistakes You Should Avoid
1. Don’t underestimate budgeting. In your 40s, 50s you were careful to keep a budget, so don’t stop during retirement. This doesn’t mean tightening the belt to secure a fixed income for the long haul – one that may control and limit your lifestyle. Retirement is something to look forward to! To do what you’ve always wanted to do. Luckily, careful planning can actually increase your spending budget for a lifestyle that opens more possibilities. For example, with proper budgeting, you may pay up to 30% less on expenses than before you retired.
How is this possible? Well, after you retire, you can subtract commuting, retirement contributions, and possibly reduced taxes – just to name a few expenses. But whether your retirement budget is more costly than your working-years budget depends, in large part, on your post-work lifestyle expectations. A financial professional can help you create a budget that puts forth a bigger cushion to do exactly want you want in retirement with less worry.
2. Don’t be 100% risk-averse or risk-tolerant. Strike a balance when investing your retirement money. Diversified across multiple asset classes. Being too risk-averse or too aggressive could put your portfolio out of balance. Basically, investing your retirement savings is a double-edged sword that warns against becoming too cautious as an investor while simultaneously moving toward more conservative, short-term investments that allow you to preserve and access your money. Before you were 50 or even 60 years old, an advisor likely balanced your portfolio with aggressive growth products and more resilient, stable investments to hedge against market volatility and lows—even recessions.
Some recommend a 50/50 portfolio in equities and fixed investments, others are more conservative. But it’s important to stay ahead of inflation, so some risk should be considered. On the flip side, it’s also critical to keep your money intact, so it’s around when you are ready to use it. Some strategies for wealth protection should be considered, as well. There’s no universal, perfect proportion, but there is one that can be tailored by a financial professional just for you. A general guideline that could help you with diversification decisions is the Rule of 100.
3. Don’t apply for Social Security too early. Life expectancy is going up. Some people are now working beyond age 62, sometimes into their 70s. So if you start taking benefits at 62, for example, you will get up to 25% less monthly income than if you claimed at 66 or 67, depending on which your full retirement age is. For many baby boomers, age 66 is the full retirement age. And if you waited until age 70 to claim, you would receive up to 32% more in benefits.
What’s more, the break-even age for social security is in the low 80s. This means that if you’re banking on a lengthier life, you’ll especially want to consider delaying your distributions. If, on the other hand, you don’t expect to live long, you’d want to consider taking benefits earlier. The Social Security Administration provides calculators for the changes in distribution percentages but the bottom line is there are some real shifts in distribution amounts depending on your age. Take your health into consideration and make a decision that works for you.
What’s the Takeaway?
In the end, retirement savings techniques aren’t formulaic. You should strike a balance and find a retirement plan that suits your needs. Just don’t fall prey to these common pitfalls. Instead, avoid the common mistakes, make smart decisions, don’t make dumb ones, and enjoy yourself! You’ve earned it.
Are you ready for personal guidance with planning for your retirement years? SafeMoney.com can help you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.