If you plan to have money left at the end of your life rather than vice versa, you need to avoid some retirement planning mistakes. Those mistakes can be magnified, especially during the years you cannot replenish diminishing funds. When you get older you can’t save more, and you can’t bulk up your savings if you’re just getting by on Social Security.
So, you need to think about what you are doing now, especially when you cannot rely on a steady company pension. It is up to you alone to guarantee a comfortable retirement.
Here are four common mistakes retirees can avoid:
1. Believing your retirement savings are on track—when they are not
You need to know the answers to two questions:
- First, how much per year will you spend when you are retired?
- Second, how much will you need to save to supplement Social Security and other pensions to answer the first question?
According to a 2018 report by the Bureau of Labor Statistics:
- Americans 65 and older spend $4,238.33 per month or an average of $50,860 per year.
- Broken down by age group, those seniors aged 65 to 74 spend just over $56,000 per year. Retirees aged 75 and older spend less—about $43,000 annually.
So do the math. Are you saving enough to supplement your Social Security benefits, which will fall well short of the above numbers? If not—or you simply don’t know—you are making mistake number 2.
2. Having a retirement plan based on outdated assumptions
As you approach retirement, you likely have a sense of how much your portfolio is worth, maybe even how much you will need to spend in retirement. Unfortunately, most people don’t check their numbers against potential market conditions that could ruin returns or even erode the value of their retirement portfolio.
So, the Financial Planning Association advises potential retirees to do research or get some help in updating their plans from an advisor who can plan for stabilizing their portfolio considering:
- market returns assumptions (both negative and positive)
- expected rate of inflation (both benign and extreme)
- other macro factors such as a resurgence of the recent devastating pandemic
3. Failing to diversify your retirement portfolio
A diversified retirement portfolio, as opposed to accumulating and depending on a large amount of your company’s stock, is how you balance risk. When the market is down, interest rates and municipal bonds react to mitigate the volatility. If you discarded those outdated term life insurance policies in favor of tax-deferred annuities, you are wisely hedging your bets and diversifying.
4. Retiring while you are at the peak of your professional skills and earning
Each year you work beyond retirement eligibility is an additional year of full working income without tapping into your retirement savings. You can continue to bulk up your 401(k) and become eligible for a yearly eight percent increase in Social Security benefits. According to the Financial Planning Association, when you stay on the job a few years longer, you can boost your retirement income by one-third or more.