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7 Common Retirement Pitfalls You Need To Avoid

7 Common Retirement Pitfalls You Need To Avoid

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.

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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.

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    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.

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    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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    Featured photo credit: StockMonkeys.com via flickr.com

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    Published on September 17, 2018

    How Being Smart With Your Money Leads to Financial Success

    How Being Smart With Your Money Leads to Financial Success

    Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

    With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

    So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

    1. Avoid being “penny wise but pound foolish”

    It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

    You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

    So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

    2. When you want something big, wait

    Impulsivity can get you in trouble in most aspects of life. Finances are no different.

    It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

    We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

    A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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    So, you get the itch.

    You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

    Here’s where you have to take a step back.

    Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

    Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

    It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

    The impulse faded. And you just saved yourself a ton of money.

    3. Live smaller than you can afford

    You finally get that big raise. And you want to celebrate – and why not?

    You’ve been looking forward to this forever. And after all, it was all due to your hard work.

    That’s fine, splurge a little. However, make it a one-time deal and be done.

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    Don’t get caught in the trap that just because you’re now making more money, you should spend more.

    Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

    The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

    But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

    4. Practice smart grocery shopping

    Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

    But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

    Create a grocery budget

    Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

    Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

    I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

    Make a list… and never deviate

    Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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    You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

    These impulse decisions will lead to overspending, which will derail your grocery budget.

    Eat before going grocery shopping

    It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

    If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

    After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

    Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

    However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

    This makes it much easier to stick to your grocery plan.

    5. Cancel your gym membership

    Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

    The average gym membership costs around $60 per month. That’s $720 a year.

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    Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

    I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

    Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

    Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

    For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

    Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

    There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

    It’s baby steps… And baby steps can start now!

    I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

    Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

    The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

    Featured photo credit: Unsplash via unsplash.com

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