Life happens so fast these days. As a teenager in high school, you are consumed with homework and friends. In college, you choose your area of studies in hopes of getting the career of your dreams. After you graduate, your dream is sometimes delayed with the harsh reality of entry-level jobs, lower pay than originally expected, and a few unforeseen bumps along the way. Years later, you finally earn that dream job, you meet and marry the man/woman of your dreams, you start your beautiful family that you always wanted, you buy that bigger house on the hill, you plan spectacular yearly vacations for your family, and you invest in your brilliant child’s Ivy League education. Wow… your life speeds by before you know it. So, what do you do now with your retirement years on the horizon? Don’t become so blinded by planning for your career, success, and family early in life that you forget to plan for yourself later in life too.
When planning for your retirement, avoid making these classic errors that could potentially threaten your retirement savings, happiness, and financial security.
Mistake #1: You start saving for your retirement in your later years. Solution: You need to start saving when you are young. Don’t be caught behind the eight ball and trying to make up for lost time, and consequentially, lost savings. Liz Weston, author of The Ten Commandments of Money: Survive and Thrive in the New Economy, suggests that an individual needs to start saving for retirement by age 35. Otherwise, he/she will have an impossible uphill battle trying to catch up.
Mistake #2: You ignore your debt. Solution: Before you retire, focus on tackling your mortgage and credit card debt. It sounds obvious and somewhat self-explanatory; however, some studies now indicate that older Americans are taking on more mortgage and credit card debt at an alarmingly increased rate. Don’t add to this increasing number of older Americans who enter into retirement deep in debt. Pay off your credit card debt and mortgage debt as soon as possible. Make your climb out of debt your number one priority so you are not making these payments with your retirement savings.
Mistake #3: You expect a large amount of retirement support from Social Security. Solution: Base your expectations on reality and not what you hope it will be. Don’t place so much of your retirement stability on your expectations of Social Security. Just think, if you underestimate the boost provided by your social security, you will only be pleasantly surprised in the long run. This way of thinking is much better than the alternative method of being caught off guard.
Mistake #4: Your investment decisions resemble the same investing risks that you took in your twenties. Solution: Diversify your retirement investments so you don’t place all of your eggs in one basket. What happens if the basket breaks? What do you have to fall back on? You don’t want to lose all of the hard work accomplished with your own blood, sweat, and tears. The vitality of your retirement savings and investments is not worth that kind of risk even if a high-risk investment looks like it will have enormous growth potential. The key word here is “looks”. You do not want to place your future welfare in “looks”; you want to place the future of your retirement stability in “diversification”. That’s right, the term “diversification” is not just a fad term coined for stock portfolios anymore.
Ultimately, just guarding against these mistakes can drastically improve the outcome of your retirement years. What you don’t think about and plan for now can haunt you in the years to come. Yes, it’s initially easier to spend the first half of your life carefree and not looking out for your golden years; but in the long run, it’s easier to spend the time and energy now securing yourself against these potential retirement pitfalls in the future. So, be proactive now, and adjust your path to your retirement. Start as early as possible, and optimize your golden years!—You will be so glad you did.