The writer came across this list of retirement mistakes in an article that he was reading and decided to write a post about these mistakes from our personal perspective. This list is not scientific or based on statistics of any kind. Instead, it is based on the writer’s real experience and the impact of making one of these mistakes. We would be interested to hear from readers about their thoughts on this subject and anything they can add to this thought process.
Here are the Top Retirement Mistakes
- Spending too early
- Start saving too late
- Withdrawing from a retirement fund
- Forgetting about healthcare
- Turning down free money
- Ignoring your investment savings
More Detail about Retirement Mistakes
Saving without a plan or goal is akin to going on a trip with no particular destination. If you are saving for retirement, emergency funds or a new car, have some idea of how much you will need to meet your goal. You could be saving too much or you could be saving too little and receive a nasty surprise. Talk to a financial adviser to discuss what you will need when you will retire to meet the lifestyle that you desire for you and your family.
Spending too early—Any money in a savings plan will compound, and if you spend it too early, you lose the interest or dividend income generated by the plan, which was reinvested and contributed to meeting your goal. Remember that you need to have sufficient savings to get you to your goal, which for most people is a satisfactory quality of life during retirement.
Start saving too late compounding works wonderfully, especially over a long period. Someone who starts saving in their 20s will need to save far less than those who start in their 40s. You may have lost 20 years of compound interest or dividend income, which can only be made up by larger and larger savings from your income during your 40s and 50s. It is just so much easier if you start early!
More Items about Retirement Mistakes
Withdrawing from a retirement fund to pay for a car or a mortgage repayment has the same effect as not contributing. You have less money towards your goal. You are not reaping the rewards of the interest and dividend income your savings generate. Are you saving the interest cost of your mortgage, for example? However, if you withdraw from a tax-free savings plan, you may be giving up more long-term tax-free income than you think. Talk to a financial adviser for assistance before making that decision.
Forgetting about health care can make a huge difference in your plans. Paying ever-increasing premiums. Paying for the deductible portion of the health bill can devastate a person’s savings. Plan for this requirement and always have money for your health needs. Many people forget that one spouse could end up in a nursing home due to the care that is needed while the other lives at home. Now, you have the cost of both residences plus the health cost of maintaining the nursing home charges.
Turning down free money: Always take advantage of free money from your employer for retirement plans, matching investments, etc. Some employers will match contributions to retirement savings plans and investment plans. This is really extra income that can add up significantly over time.
Ignoring your investment savings Once you have savings, whether in a tax-free savings plan or otherwise, pay attention. At least once every six months, meet with your adviser. Determine if any changes are needed to rebalance your portfolio. Invest for the long term and focus on high-quality investments with diversity in mind.
The Bottom Line
Saving without a plan or goal is like living without a plan. To reiterate, establish a savings plan and a goal. Determine how much you will need to maintain your lifestyle during retirement. This includes paying for trips, maintaining the house, and paying for health care. Then, start saving for this long-term goal as soon as possible. It can mean a huge difference for you and your family, especially if you begin early in life!