Avoid Retirement Planning Pitfalls
Artcle Provided by: Rob Curtis, Robert.Curtis@horacemann.com
Many people think saving for retirement is complicated enough: finding money to put away, considering the type of investment to put it in, and managing the ups and downs of the markets in this economy. And there are some pitfalls that can complicate your retirement strategy. But every day, thousands of people do find the resources to retire, even though they may have made some mistakes along the way. Here are a few mistakes you should watch for and avoid if you hope to get to retirement with enough money to enjoy your time.
Not having a defined strategy
What are your retirement financial goals? To find out, you can start by trying to estimate how much money you’ll need to live on in retirement. You’ll need to factor in your expected retirement income sources, including a pension (if any) and any Social Security benefits, plus any additional amounts you’ve saved. You’ll also need to factor in the cost of healthcare in retirement, as that is a concern for many retirees.
Consider what you will need to provide the basics of food, shelter, and clothing. Then add in the wants, like travel, transportation, clubs and organizations. Once you know the needs and wants, you can consider whether you might have enough to consider some dreams, like a vacation home, exotic destinations, or starting a business. Now, how much will each of those things cost? Make a plan to set aside what you’ll need over the amount of time you have until retirement.
Not starting early enough
You may have your strategy and know how much you’ll need to have the retirement you want. However, if you’ve waited until your late 40s to start saving, you may not have enough time to accumulate enough for all those retirement goals. Starting early gives you a lot of time to accumulate enough for your retirement savings – you may not have to set aside as much for retirement if your investments have time to grow, plus you have the power of compound earnings on your side if you start early. All is not lost if you have waited to start your retirement savings, but it will take a lot more sacrifice to accumulate enough to meet your goals.
Unrealistic growth expectations
So you’ve got a strategy, and you’ve started setting aside funds early enough. You’ll have plenty now, right? So much you’ll be able to retire early! Well maybe, or maybe not. How fast you make your goal depends on a lot of factors, including what the markets may do. Sure, if they grow and grow and grow, you’ll make your goal quickly. But markets don’t work that way - they have up years and down years. And if you’re counting on double digit increases every year, you should probably prepare for disappointment. It’s unrealistic to expect growth every year. A year of increase can be followed by a year of double digit decrease. The stock market has averaged an increase of about 8 percent over the last 50 years (Forbes, 2018), and it has endured a few 30 percent decreases during that time. So keep your growth goals realistic.
If you’ve got your strategy in place, have started early and have realistic expectations, you may be well on your way to realizing your retirement financial goals.