Retirement planning can feel like an impossible task, especially when most of us live in the present. With monthly bills and recurring financial commitments, it’s hard to concentrate on tomorrow. While it will take discipline and a certain amount of sacrifice for future financial wellness, your future self will thank you for doing the hard work now.
As important as it is to know the right steps, it’s also vital to avoid common traps people find themselves in.
The following is a list of common mistakes people make when planning their future.
You Don’t Have Plan in Place
Like everything in life, you have to have a plan. You have to make your best future a reality by first visualizing what you want your golden years to look like. Are you going to be a snowbird who flies south every winter? Do you want to improve your golf game? Take up a new hobby? Travel the world? Or be the grandparent who volunteers at your grandkids’ school? Knowing what you want out of your senior years is a great start.
Once you’ve established your goal, analyze your income today and future projections, and reverse engineer your desired standard of living. By having a benchmark, you’ll be able to know what is required for your nest egg to flourish.
You Are Not Taking Life Expectancy Into Account
According to the US Centers for Disease Control and Prevention (CDC), Americans can expect to live to the ripe age of 78. Take into consideration, an extra decade or two, in comparison to our grandparents, for financial planning.
You Are Taking Early Retirement
Early retirement may sound like an amazing idea but you are leaving money on the table if you do. While you are able to take social security distribution as early as age 62, you will not receive the entire monthly benefit until you are considered the full retirement age by Social Security. The age varies depending on the year you were born but it can vary from 65 to 67.
You Aren’t Saving Enough
Some money experts believe you need at least $1 million to retire without financial worry. That number was calculated for baby boomers, not the generations that followed. In fact, the $1 million estimates were based on investment which, in it of itself, does not take into account investment incomes fluctuate.
Focus on what you can control and how much can you invest or save right now. If the numbers don’t add up, consider adding a side hustle so you can increase your contribution. The extra dollars will give you greater control over your financial wellness, making reaching your goal a lot easier.
You Haven’t Started Saving Early Enough
Don’t wait for the perfect job to start saving; the right time is now. Take for example a 25-year-old who saves $3,000 annually for 10 years in a tax-deferred retirement account. The $30K invested over that decade will reach $338,000 by the time this individual turns 65, with a 7% annual return.
In contrast, a 35-year-old who starts saving $3,000 annually and continues for 30 years will have invested $90K which will result in $303,000 with the same 7% return as the previous example at the age of 65.
Numbers don’t lie; when it comes to retirement savings, the earlier the better.
You’re Relying Solely on a Pension Plan
Pension plans ensure you’ll have available funds throughout your retirement.
The average pensioner in the United States receives $1,461/mo or $17,500 annually from Social Security benefit this year. Although seniors received a raise of 2.8%, 2020 will only be 1.6%. This is nowhere near enough to mitigate inflation and health care costs.
A survey by TD Ameritrade found 67% of Americans prefer to cut back on their expenses during retirement than the present. But this is the time you want to enjoy yourself and live worry-free. You have your health, energy, and youth now to do all the right things to ensure your financial wellness throughout your lifetime.