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Financial Planning for Retirement: 8 Mistakes to Avoid

Planning for retirement is one of the best gifts you can give your future self. By starting early, you have plenty of time to think ahead, make long-term plans and adjust accordingly to avoid the worst mistakes. As you draw nearer to the retirement finish line, it’s important to continue to refine your plan and make sure it’s working as strongly as possible to give you the retirement of your dreams.

According to the Federal Reserve, 37% of non-retired adults believe their retirement savings are on track, while 44% say their savings are not on track and 19% are not sure. That’s a large number of “unsures” and “not on tracks.”

“No one sets off on their retirement planning journey intending to sabotage their savings,” says Kathleen Winn, Senior Advisor at Waterstone at the Circle. “However, it’s very easy to let little things turn into big things, which then can get your plan severely off track. However, it’s never too late to take a look at your plans and make changes that are in your best interest.”

As the old saying goes, the best time to plant a tree was 20 years ago, and the second-best time is today. Here are some retirement mistakes you can easily take steps now to avoid, whether you’re years from retirement or getting ready to start your adventure.

Mistake 1: Retiring too soon.

After decades of working, the thought of retiring can be very attractive. So attractive, in fact, that it’s possible to retire too soon from the workforce, leaving you with a gap that could potentially mess up your future finances. Retiring early means that you can miss out on contributions to your retirement accounts (and lose free money, if your company provides a match). It also means you could be facing higher healthcare costs (or a gap in your healthcare altogether as you wait for Medicare to kick in). As we as a society live longer and longer, retiring early does increase the possibility of you outliving your savings. That being said, there’s no “right” or “wrong” time to retire. The important thing is to look at your finances and options overall, talk with a certified professional and make an informed decision based on your goals and financial situation.

Mistake 2: Not continuing to save.

Compound interest is a wonderful thing, and the best friend to compound interest is time. The longer your invested money can sit where it is, the more it will accumulate. Most people would assume that once you leave the workforce, you will no longer be saving and investing money. There’s no reason that has to be the case, especially if you find yourself in a financial situation where you can pay for your living expenses without having to tap into your retirement accounts – for example, if your spouse will still be working after you retire. This allows you to continue to add savings into your investments and accounts as long as it is possible and comfortable for you to do so. Waiting as long as possible to touch your investment savings can pay off huge dividends later – literally.

Mistake 3: Not having a financial plan (or, having a financial plan you don’t update).

A financial plan is not a set-it-and-forget-it plan. At least once a year, even in your retirement years, it’s good to sit down with a financial planner, see how your plan is performing and make any adjustments needed to keep things running smoothly. If any new needs or lifestyle changes have come up, your plan should be adjusted accordingly. This allows you to halt any pitfalls you see coming, and avoid minor problems turning into major ones.

Mistake 4: Not rebalancing your portfolio.

Similar to mistake number four, your investments shouldn’t be set-it-and-forget-it either. As you get closer to retirement, you should be adjusting your portfolio accordingly to scale back your level of risk and increase stability. That doesn’t mean you should be 100% in bonds on your last day of work, but it does mean making sure that you have a sizable amount of your investments in fairly solid locations.

Mistake 5: Not planning for taxes.

If you have a traditional 401(K), you’ll pay taxes on any money you withdraw during that year. In order to minimize your tax burden, it’s important to have a plan in place that helps you determine how much you can withdraw each year. This is where having a balanced portfolio is important, because it allows you to better supplement your retirement with non-taxable funds, such as money from Roth IRAs.

Mistake 6: Building up debt.

Digging yourself into debt prior to retirement can be a big deterrent to you having the life you want to live in your golden years. While some debt may be good (for example, if you have investment properties that are turning a profit), it’s a good idea to pay off or at least pay down debt before you retire, which will reduce your overall costs in retirement.

Mistake 7: Not planning for healthcare costs.

Medicare only covers about 80% of retirement healthcare costs, meaning that you will either need to have a supplementary health insurance policy or pay the money out of pocket. Medical costs can skyrocket in the senior years, especially if someone develops a chronic disease like diabetes or dementia.

Mistake 8: Helping your kids at the cost of your future.

This can be a tricky situation to find yourself in. Most parents want to and even enjoy helping their kids out, whether that’s paying for college, buying a house or helping fund other parts of their lifestyle. However, every financial expert would agree: don’t borrow from your future to pay for their present. While it’s admirable to want to help family members, remember that your children and dependents have a lot more time than you to make up any financial losses. Your focus should be on building and protecting your nest egg so you can live comfortably in your golden years – and not be a burden to them.

Planning for retirement can be time-consuming, but it doesn’t have to be painful. With good guidance and some foresight, you can start taking steps to building a solid financial foundation for your retirement, whether that’s down the road or just around the bend.

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