The 8 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. And you certainly don’t want to run out of money during retirement, do you?
8 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.
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.
4 Money Mistakes Gen X Wishes They Didn’t Make When They Were Younger
GoBankingRates spoke with some Gen X members about past money mistakes to warn future generations not to make the same mistakes.
Here’s what some Gen Xers had to say about their money mistakes and how to fix the problems before they get out of control.
Getting Into Credit Card Debt
“Credit card companies make initial access to credit easy,” said Adam Scherer, CFP®, MS, EA, founder and lead financial planner of Greenbeat Financial, a fee-only virtual financial planning firm.
“There are often free giveaways or incentives to enroll. However, the interest rates applied to balances that are carried forward are astronomically high. Incurring credit card debt can create significant financial stress and has the potential to adversely impact your credit score.
If you opt to open a credit line, establish a habit of paying down your balance as quickly as possible. Starting your professional career with the weight of debt on your shoulders makes the climb toward your future feel exhausting.”
Not Saving For Emergencies
“When you first start earning money, money will be tight,” said Trae Bodge, a retail and money-saving expert. “Despite that, try to save even a little bit so you can take advantage of compound interest.
I would suggest setting up automatic withdrawals through your bank or a financial platform like Acorns. Acorns also has a ’round-up’ feature that invests your ‘spare change’ for you every time you use your debit card — an easy and painless way to save. It’s something that wasn’t available when I was younger, but I’m making up for lost time now!”
Falling Victim To FOMO
Fear of missing out (FOMO) can be dangerous for your self-esteem and wallet.
“Leasing nice cars, buying toys and gadgets that our friends have purchased and going out to restaurants too much because of the fear of FOMO (fear of missing out),” explains Matt Ruttenberg, founder of SureLI.
“FOMO took money directly out of our pockets and into paying high-interest credit card payments. These habits stalled our journey to reach financial independence and cost us tens of thousands of dollars, minimum.”
Spending All The Money You’re Making
Michael Benson’s story serve as a lesson in spending to impress other people and it proves that even people who deal with money for a living can make big money mistakes. Benson is a bankruptcy attorney, certified public accountant, licensed investor, and owner of A Bankruptcy Law Firm.
“When I started making good money as a CPA, I was inclined to spend it and treat myself. I bought a very nice house in a gated community with access to a golf course right from our backyard.
I still live in the house today and it’s a great house, but it was much larger than we actually needed. It’s a bit painful to reflect on how much money I would have if I didn’t opt for the bigger house with the bigger mortgage.
When it comes to things like homes and cars, I would definitely recommend only buying what you truly need. You’ll save a lot of money that way and your future self will thank you.”