Are You Making These 5 Retirement Planning Mistakes?

Planning for retirement, but worried you’re missing something?

There’s so much to think about when it comes to planning out a secure financial future even after you stop earning an income from your job — and there are a lot of moving parts to coordinate and organize.

It’s easy for things to slip through the cracks if you’re not careful. And retirement is such a big financial undertaking than even a small mistake can really throw off your plan.

Make sure you’re on the right track and not leaving any stone unturned by reviewing some of the most common mistakes people make with their retirement planning, including these 5.

Mistake #1: Not Having a Retirement Plan at All

Failing to plan is planning to fail. That old saying rings especially true when it comes to your finances.

The biggest retirement planning mistake you can make is to not plan for your retirement at all. Life after work will take up decades — and on one hand, that’s a wonderful thing. That’s a lot of time to explore new passions, hobbies, and opportunities.

But that’s also a lot of years to finance and you need to know how you’ll do it. Retirement planning should include:

• Your goal amount (how much you want your nest egg to be worth before you retire).
• Your ideal retirement lifestyle and what that will cost you per year.
• Your plan for income in retirement — whether that’s through withdrawing money from savings, accepting benefits from an employer (or the government, like SSI), creating your own side business, monetizing a hobby, or a combination of various income sources.
• Your investment strategy and how it will change in and through retirement.
• Your plans for maximizing tax efficiency.
• Your need for various insurances.
• Your estate plan.
• Your plan for what you’ll do with your home, if you own one, and countless other little details that will help you determine the right actions to take with your money, now and into the future.

If you haven’t started thinking through these factors, now is the time to do so.

Mistake #2: Diversifying Investments, But Not Retirement Account Types

You know you need to diversify your assets to protect against risk. That helps keep your whole portfolio from tanking, even when the market goes through a rough period. But did you know you need to diversify your retirement account types, too?

Here’s why. Say you only saved in your 401(k). You’re in your late 40s or early 50s and you’re proud of the nest egg you built within that account. And if you just look at the numbers, what you have saved there is enough to allow you to retire early.

But you can’t access all that money in your 401(k) without penalty until you’re 59 ½. If you retired early — even around age 55 — you’d need to fund years of expenses until you could reach the money you diligently saved just for that purpose.

Diversify the accounts you save and invest in. Consider a non-retirement, taxable brokerage account to compliment other retirement accounts should you ever need to tap into your savings before retirement.

You should have various tax-advantaged accounts for retirement, too. Don’t just save in a 401(k), where you’ll save on taxes today but need to pay in the future. Invest in other accounts, like a Roth IRA or an HSA, to balance your tax burdens.

Mistake #3: Not Saving Early and Often

Think you’re too young to worry about retirement? Think again! Compound interest — or your investment earnings earning their own interest — works best when you give it as much time as possible.

Compounding has an exponential effect. Check out any compound interest calculator that will graph even small gains, and you’ll see the results resemble a hockey stick. The line starts fairly flat for a while, but then sharply rises upward.

The longer you wait to start saving, the more work you give yourself. Don’t make any excuses: contribute to your 401(k), max out a Roth IRA, open an HSA and start banking money for future healthcare costs.

Even if it’s just a few hundred dollars a month, make it a priority. Your future self will thank you.

Mistake #4: Relying on Someone Else’s Benefits

There’s nothing wrong with including Social Security benefits or a pension in your retirement plans. You will likely receive some benefit from the government (even if it might be less than what today’s retirees receive.)

But you shouldn’t stake your entire income in retirement on these third-party sources. You have zero control over what laws, rules, and regulations will change in the future (or what decisions companies and businesses will make about benefits like pensions), which could impact how much you need to save on your own.

In most cases, you’ll want to play it safe. Assume you won’t receive any kind of assistance or benefit from anyone else, and take on the responsibility for funding your own retirement.

The best case scenario will leave you with more money than you need, since you’ll have your own savings plus other benefits. But even if you’re stuck with the worst-case scenario, you’ll still be okay because you worked to save on your own.

Mistake #5: Designating Beneficiaries on Accounts, But Skipping the Estate Plan

If you named a beneficiary to your insurance policy, retirement accounts, and other financial assets, good job! This is an important step to take to ensure your assets are distributed according to your wishes should anything happen to you.

But only naming a beneficiary may not be enough, depending on your state and if anyone contests this in court after your death. Sometimes, even when you name a beneficiary, your assets can end up in probate court if you don’t have a full, properly-executed estate plan.

A probate judge will then determine how your assets are divided amongst surviving heirs. Avoid this retirement planning mistake by finishing what you started: don’t just designate beneficiaries. Work with an estate planning attorney to set up all the other legal documents needed.

Even if you realized you were making a mistake with your retirement planning, it’s always smart to get an objective third party to review your plan and ensure the future you want is the one you’re setting yourself up for financially.

A fee-based financial planner who acts as a fiduciary can quarterback your financial situation and your retirement plan, coordinating everything in one place and giving you peace of mind that you’re sailing toward your goals, error-free.

Eric C. Jansen, ChFC is the founder, president and chief investment officer of Westborough Massachusetts-based Finivi, which provides fee-based retirement income planning and investment management services for successful individuals and families nationwide. Do you need help planning for retirement? You can click here to schedule a complimentary consultation with a financial planner.

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