8 Of The Worst Money Mistakes That Can Blow Up Your Retirement
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Retirement is such an important chapter of life, but there are so many financial pitfalls that retirees can make. The phase of happiness that is expected to be relaxing can transform into an era of stress, uncertainty, and anguish. Here are eight of the worst money mistakes that can ruin your retirement.
If you fail to plan, you are planning to fail
In the 1700s, Benjamin Franklin said, “If you fail to plan, you are planning to fail.” The 18th-century quote still holds up to this day, especially when it comes to retirement planning. Simply thinking that your retirement will work itself into a positive situation without putting any planning into it will likely end in problems.
Don’t put off until tomorrow what you can do today
Another Benjamin Franklin quote from hundreds of years ago is still as relevant as ever. If you don’t start saving for retirement in your best wage-earning days, then you will be scrambling later in life. Only 39% of adults who are saving for retirement started in their 20s, according to a study from Morning Consult. Slightly more than 25% of Americans in their 30s begin saving for retirement. Another study found that most workers over the age of 40 don’t have sufficient retirement savings and aren’t setting aside enough to catch up, according to the Insured Retirement Institute. The study found that 46% who are planning to leave the workforce at age 65 or earlier don’t have enough funds to retire.
Retiring at the wrong time
Retiring at the optimal time can be tricky since you don’t have a crystal ball to tell you the future. You could retire too early, live longer than anticipated, and then run out of funds. Plus, retiring at a younger age could result in lower Social Security benefits. Conversely, you could retire too late and forfeit all of your workless golden years. Knowing your health will help you make an informed decision as to when retirement is right for you.
Underestimating medical expenses
Speaking of health, you need to be realistic about possible health catastrophes and the potentially exorbitant costs related to your issues. Medicare doesn’t cover long-term care, most dental care, dentures, eye exams related to prescribing glasses, routine foot care, and hearing aids and exams.
Inflation could cause your money saved to be significantly worth less than you anticipated. The Federal Reserve expects a 2% inflation rate each year. However, higher inflation rates can catch people off guard – even Federal Reserve Chairman Jerome Powell. In recent months, consumer prices have been posting 12-month gains as high as 5.4%, a rate not seen since 2008. If prices for health care, food, and energy spike, the excess costs can blow up your budgeted retirement savings and damage your purchasing power in the future.
A smart retirement plan will have a set budget, but if you veer off that economic program, then it can ruin your retirement. Taking up expensive hobbies or pricey vacations may sound perfect for retirement, but these expenses can drain your savings quickly.
Hiring the wrong financial adviser
If you employ the advice of an incompetent financial advisor, then your retirement planning will likely be disastrous.
Taking too much risk
If you employ high-risk/high-reward investment strategies in your retirement and they fail, you won’t have the consistent income to overcome the financial losses.