If you’re familiar with these articles, you know firsthand that they typically focus on how to prepare for retirement.
But sometimes it’s just as important to understand what you should NOT do as you get ready for that long-awaited, work-free existence to arrive.
That said, here are a few retirement planning mistakes you should avoid at all costs.
One of the most common errors that retirees run into is underestimating their financial needs.
When it comes to constructing a comfortable retirement, setting aside money for the future is a must.
Unfortunately, the majority of people are too caught up with “living in the moment” to concentrate on the next chapter of their lives.
Because of this, no real savings are being stashed away. Instead, that cash is being spent on materialistic possessions and instant gratification.
It’s a process that’s forced 78% of the population to live paycheck to paycheck!
Even the individuals reeling in six-figure salaries, considered to be “well off”, succumb to this and can’t seem to see beyond these bi-weekly payouts.
Americans simply live beyond their means, which has a negative impact on their plans for retirement.
Avoid this consumer driven lifestyle at all costs and get your finances in order while you still can!
During retirement, you’ll need to replace 80-90% of your pre-retirement income.
In other words, make an effort to build a savings account ASAP so you can adequately fund your retirement needs.
Perhaps you’ve already got the ball rolling in terms of financing your future though…
If so, you’ll want to add the inflation factor to the equation. Many individuals who are on track to retire go wrong by becoming too conservative with their investments.
But this safeguard tends to backfile due to inflation.
From here on out, inflation rates are expected to do nothing more than increase, which puts bonds and pensions without inflation adjustments at high risk.
As a rule of thumb, stocks tend to provide much better long-term protection against the risk of inflation.
Just remember to prepare for the worst and diversify your portfolio. A great way to do this is by investing in a major market index, such as the S&P 500.
History shows that the average rate of inflation is somewhere around 3%. However, the average annualized return for the S&P 500 is currently 9.8%.
By pumping your funds into this particular index you can effectively compensate for these ever-increasing values!
Finally, don’t jump the gun on your retirement date.
Just because you can retire, doesn’t necessarily mean you should.
I’m sure you’re itching to leave the Monday through Friday, 9-5 workweeks behind and start claiming Social Security, but in this case, it pays to wait.
A lot of people make the mistake of kickstarting their retirement once they become eligible for their benefits.
The thing is, just holding off a little longer can put more money in your pocket in the long-fun.
In short, the earlier you start to withdraw Social Security, the smaller your monthly payout will be.
Choosing to retire at age 62 will result in a 25% deduction per month than if you waited until 66 years old.
You be the judge, but in most circumstances it’s worth participating in the rat-race a bit longer.
Don’t let these common mistakes interfere with your retirement.
Remember to build savings, take inflation into consideration and postpone retirement if you want to receive the absolute most from your benefits.