All of us will hopefully reach retirement age. This means we all need a retirement plan. Sadly, even those of us who have such a plan often don’t plan correctly for retirement.
Here is a list of 7 common mistakes and the problems they cause:
1. Overacting to market volatility
Many retirees prefer lower yielding bonds and similar funds because they believe these funds are safer. While it’s a good idea to include bonds in your portfolio, the best bet for return on your investment remains the stock market. Most investment counselors suggest that a retiree invest in the stock market a percentage equal to 120 minus their age. Be sure to keep up with inflation, especially on the products you need to buy each month. Most bond funds don’t generate enough income to do this.
2. Relying on factors outside of your control
Make sure your retirement program does not include unrealistic goals and expense levels. Yes, retirement will cause you to reduce some expenses. However, other expenses will increase as you age, including health costs, help around the house, and hired transportation. Can you rely on your pension or government income to always be there? Many retirees work part time to increase their budget.
3. Retiring without your first few years’ income set aside
No one’s retirement or pension is paid immediately. It often takes several months or longer for that first check to arrive. You will need to pay yourself during this period. You will also need some fall back money for unexpected expenses (you can’t work overtime any more). Having extra money in the bank is crucial while you are adjusting to your new level of income. Most of us will live 20 to 30 years in retirement. It is the longest span of life.
4. Taking out a loan
Taking a loan to tide yourself over is a poor deal. This is true whether you use a credit card or go through a bank. Most of your investments will not pay at the level of the interest you will pay on this loan. So, don’t do it. Find another way. One exception can be a reversed mortgage, especially for those are clearly outliving their retirement benefits. But, if at all possible, don’t take out loans to live. This is never a great strategy at any age.
5. Not sticking to a plan
As we get older, many of us become less able to manage our funds. This is why we need to have someone help us with this problem. This can be a child or a paid investment counselor. The idea here is to set up a lifetime plan and then stick with it. You don’t want to be spending your money uselessly by switching banks or other investments due to confusion. However, don’t hang on to stocks for too long either. Set up some investment standards and then stick to them.
6. Giving too much to your children
Your adult children need to support themselves. Don’t spend money on them that you need to live on yourself. It is okay to say, “No, I can’t afford that because I am on a limited income that needs to remain balanced.” It is fine to assist with an actual emergency, such as a car repair that crops up at a bad time, or give a gift to help with a new arrival, but don’t stray from your lifetime plan. A good idea is to consider these possible events while creating your retirement plan.
7. Not looking at the cost of things
A retiree needs to live on a fixed income. This means being careful with money. Some good ways to lower costs are
- moving to a smaller, less costly home
- changing your state residence to one with lower or no taxes
- taking advantage of senior discounts, many which are not income dependent
- buying Medicare gap insurance
The last tip is especially useful, because paying that 20 percent that Medicare does not cover for a hospital stay can really sink a retiree.
Overall, remember that retirement needs years of planning to be successful. Be sure to think ahead, and avoid these pitfalls for a successful life after retirement.
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