Since nobody can predict their exact lifespan or how their expenses might change in the future with 100 percent certainty, it’s critical to adequately plan for retirement. However, there are a few common, yet avoidable, retirement planning mistakes people tend to make relatively often.
Retirement Planning Mistakes to Avoid
1. No Set Strategy
Although there are plenty of useful pieces of retirement planning advice, such as “have at least $1 million in your 401(k) by age 65” or “save 10 percent of every single paycheck,” these blanket statements cannot account for someone’s unique lifestyle.
Setting personalized financial goals and working alongside a Certified Financial Planner™ professional is the best way to develop a sound strategy that leaves room for adjustment as your life circumstances change.
2. Never Adjusting Your Portfolio
Sometimes called the “one and done” mentality, the act of setting up retirement accounts and possibly an investment portfolio and then never readjusting them is a recipe for disaster.
As life circumstances change, such as the birth of a child or purchase of a home, financial strategies should change accordingly.
3. Underestimating the Length of Retirement
As mentioned previously, there’s no way to predict exactly how long you will be retired. For this reason, it’s recommended to “over save,” just in case.
People are living longer now than they ever have before, and outliving your retirement savings is no way to spend your golden years.
4. Not Accounting for Inflation
There is no way to “inflation-proof” a retirement portfolio, but certain decisions and strategies can help to minimize the negative impact of inflation over time.
It’s highly recommended that you account for inflation within your long-term financial goals. The Federal Reserve seeks to limit inflation to two percent each year. Work with a Certified Financial Planner™ professional to account for this and also to choose investments that rise with inflation.
5. Neglecting Health Care Expenses
Health care is expensive, and as people age, they tend to have a higher need for health care. More frequent visits to the doctor can add up and deplete retirement savings quickly, especially in the unfortunate case that a retiree becomes ill.
It’s a wise idea to plan for high health care expenses in retirement, even if you’re a relatively healthy person as you read this now.
These retirement planning mistakes can be detrimental to establishing a sustainable income after you’ve finished working, but they’re certainly avoidable.