There is no magic bullet when it comes to retiring successfully.
Hard work, meticulous planning, and years of dedicated wealth-building are the main ingredients needed to facilitate a prosperous, enjoyable retirement.
There is no magic bullet when it comes to retiring successfully. Hard work, meticulous planning, and years of dedicated wealth-building are the main ingredients needed to facilitate a prosperous, enjoyable retirement.
While there are no shortcuts for this process, avoiding several of the more common planning mistakes will significantly assist you in creating a better life after work.
Here are just a few of the things people do that can create lots of frustration, hardships, and headaches later in life:
1. Waiting too long to start saving: Survey after survey confirms the fact that most people regret waiting too long to start planning retirement. The majority of folks wait until they are in their late 40’s or 50’s to start thinking about retirement planning.
Unfortunately, time is not on their side. Waiting until you are 50 to begin financing your retirement virtually guarantees you will not have enough money when you stop working. While it’s true that the human brain is not wired to anticipate future rewards (i.e.: retirement) you can, with the help of a trusted professional, break free of those psychological constraints and do what you need to do to ensure an excellent second half of your life. It’s never too soon to start planning for tomorrow.
2. Borrowing from a 401k plan. Even if you are several years away from retiring from your job, borrowing from your company’s 401 k is probably not a good idea. Tapping into your 401k often causes people to suspend or reduce new contributions as they struggle to repay the loan. In many instances, this means losing out on employer contributions and ultimately short-changing your retirement account. You also experience the “lost opportunity” cost as you miss out on growth you could have had on the cash you borrowed. There are alternatives to borrowing from a 401k, and you should check those out with a financial professional before you dip into those funds.
3. Believing you can “work ‘til you die.” Starting too late to plan your retirement could be the product of another sketchy belief: the idea that you’ll be able to work long past retirement and bring in all the money you need to survive. Over 50% of Americans polled by financial services companies are certain that they will continue to be employed long past 65, maybe even when they are 80. While this is certainly possible, there is growing evidence that older workers are fast becoming the exception, not the rule. For one thing, age discrimination is far from being an issue from the past. In 2018, AARP did a comprehensive study showing that over 61% of older Americans have experienced age discrimination. Notes AARP, “More than half of older workers who have seen or experienced age discrimination indicate they believe it starts when workers are in their 50s.” Age discrimination is one factor preventing older Americans from continuing to work at their existing jobs or finding new work, even part-time, in retirement.
Another thing that none of us like to think about is the possibility that we will experience a medical or emotional crisis that will prevent us from continuing to work or seeking other employment. The potential for a health crisis is genuine and only increases as we age. Some of us won’t be able to work past a certain age, no matter how much we would like to do so.
4. Taking on excessive risk in a bid to “catch up.” When people do eventually realize they’ve waited too long to start retirement planning, they will sometimes throw caution to the wind and start chasing after iffy opportunities promising fantastic returns. Such dubious opportunities run the gamut from highly speculative and risky Wall Street investments, to “work from home” scams to fraudulent business opportunities. Panic sets in, common sense gets pushed aside, and people are defrauded. Avoid anything that promises unrealistic returns or bonuses. Use caution when you put any of your money into any opportunity and have another set of eyes to review potential investments and contracts.
5. Forgetting to plan for long term care needs. Few people are willing to acknowledge that they or a spouse or other loved one will likely wind up needing a skilled nursing facility some day. It’s hard to imagine oneself in that situation, but the stark fact is that about half of all Americans will spend some time in a nursing home. Because Medicaid does not cover these costs, even well-planned individuals can find themselves drained of cash as they struggle to pay for long term care, which has become increasingly more expensive.
6. Cashing out your retirement plan to fund your kids’ college education. You love your kids, and you want them to be as successful as possible. So, it’s tempting to want to borrow out of your retirement to fund their education. Don’t do it! There are almost always alternatives to parents liquidating their 401k’s or other retirement plans. You need to meet with a college planner and discuss every possible source of college funding before you touch a penny of your own retirement money. Your retirement accounts should always be a last resort when it comes to college funding or any other funding for that matter. Remember: you will likely never recover from losing gains that money would have made had you left it in your account and allowed it to grow.
7. Carrying debt, including mortgages, into retirement. Retirement doesn’t mean an end to your financial obligations. On the contrary, you may find things such as utility costs, medical expenses, taxes, home maintenance, etc. actually increase as you (and your home) get older. Unless you are in the minority of Americans who retire wealthy, you are going to need every penny you have to maintain your quality of life. That is why it doesn’t make sense to carry large debts into retirement. You should begin the process of eliminating as much debt, including your mortgage, as possible. Bringing debt into retirement will cause you loads of stress and anxiety. If you are still working, make it your goal to get rid of your debt before you clock out for the last time.
These are just a few of things that current retirees say they wish they known before they decided to retire. Avoiding even one of these mistakes could mean the difference between a retirement filled with regret and one that is peaceful, prosperous and fulfilling.
