5 retirement mistakes to avoid, according to experts
sThe desire to retire is one of those endeavors that can be hard to get around. After all, how many other life milestones do it take decades and decades to come to fruition? Since there is so much time and preparation, it is very important to take care to avoid the retirement planning mistakes that financial planners see all the time.
A widely accepted guideline for general retirement planning is to get rid of at least 15 percent of your salary beforehand.–tax. So, for example, someone who earns $60,000 per year (or $5,000 per month) should theoretically set aside about $750 each month.
But this plan doesn’t take into account real-life nuances or the associated financial requirements, including the cost of living in your city, how many kids you have, and any major expenses — and those numbers can build up in retirement, too. “[M]Most people will retire for at least a decade, says Emily Green, private wealth manager at Emily Green. Ellevest, an investment platform aimed at women. “TA hat means a decade — or more — of daily expenses, medical bills, and living your best retirement life. “
In short: How much cash you save for the future depends on a myriad of factors. But to make sure you’re comfortable during this decade or more of post-office bliss, it pays to (literally) stay away from some very common retirement planning mistakes that experts see so often. Below, Green and Alana Benson, investment spokesperson for personal finance firm NerdWallet, tell you what not to do as you seek to look after yourself financially in the distant future.
5 retirement planning mistakes to avoid, according to experts
Mistake #1: Not starting to plan because you think you don’t make enough money
If you’re telling yourself you’ll start contributing to your 401(k) after your next raise, Benson wants you to reconsider. “Even if your income is meager, you should still consider retirement,” she says. “Housing some money, even if it’s a small amount, can really benefit you in the long run.” Thanks to a little thing called compound interest, or a return on the money you’ve invested, saving even $50 a month can be a big deal in the long run.
“Stocking some money away, even if it’s a small amount, can really benefit you in the long run.” —Alana Benson, NerdWallet
For example, let’s say you initially invested $100 and contributed $50 per month to an investment account that generated 12 percent returns. Within a decade, you would have saved about $12,000 (meaning you earned about $5,800 in interest). This is something. Well, if you find a way to invest more than $50 a month, you will make a lot of money.
Mistake 2: Trying to do everything yourself
Finances can be complicated, so don’t be afraid to hire experts in the field if your budget allows it. “For some people, planning for retirement is fairly straightforward,” Benson says. But if you have a large property, multiple accounts, different beneficiaries, or a complex tax situation, it may be helpful to talk to a financial advisor who can help you survive organized,” .
Ideally, these experts should be people who guide you in your specific situation, says Green. “We highly recommend working with a financial planner or advisor to build a plan that is as unique as you and your goals, to give you the best possible chance of achieving them,” she says. “Financial planners are not one-size-fits-all – nor should they say they are. Meet or check out at least two financial planners to make sure they are right for you.”
When you choose a financial advisor, Green recommends asking yourself the following questions:
- Do the expert’s diversity values support yours?
- Do they have the services you are looking for?
- Can they meet you where you are?
- Do they speak your language, or do they all speak a financial language?
- Are they transparent about their fee structure?
- Are they accredited?
Mistake #3: Underestimating the number you will need to retire
“You don’t want to underestimate the amount of money you’ll need in retirement, but you also don’t want to overestimate it excessively,” Benson says. “An overestimated means you have less to live on now. Using a retirement calculator can help you get the right number for you.”
Once you have a number and a plan to achieve that number, you’ll need to do your best to stick to it – no matter how the markets ebb and flow. “When the market becomes volatile, similar to what we’re seeing now with inflation and an impending recession, don’t change your plan,” says Green. “We don’t usually recommend changing your investment plan in response to market fluctuations. We believe investing consistently, through both bull markets and bear markets, is generally the best plan for a long-term goal.”
Mistake #4: Not thinking about distinct accounts from taxes
While it can be fun and exciting to play in the stock market, your tax accounts — or retirement accounts that offer tax benefits or tax breaks — always need to be your first priority.
“The first place you should save for retirement is an employer-sponsored 401(k) plan, if you have one,” says Green. “This money comes directly from your paycheck before it reaches your bank account, so you might not even notice.” This is especially important if the employer matches a 401(k). As Green notes, this is basically Free money; Do not miss it.
Once you check your 401(k) box, you’ll want to consider Individual Retirement Arrangements (IRAs) next. Contributions to these accounts provide tax-free growth for your savings.
Mistake 5: Thinking of retirement planning as a financial “chore”
Once your retirement planning strategy is set up and running, you’ll likely feel a sense of self-esteem and security — and that can be empowering. “We all get in one way or another the concept of self-care — we make time of day to take care of your mental, emotional, and physical health,” says Green. “Maybe it’s time to put retirement and financial health in the ‘self-care’ bucket, not just the ‘financial chores’ bucket, and begin a routine that more explicitly connects ‘today you’ and ‘future you’,” he said.