The journey towards the sweet retirement we look forward to looks the same over the years: you work, save, and then retire. While the mechanics remain the same, some changes inevitably appear due to varying circumstances affecting life and society.
The current life expectancy in the United States in 2022 is roughly 79 years old, slightly longer than in 2021. It means that the money you’ve been saving for retirement during your early 20s or 30s needs to help sustain you for much longer.
All retirees want to enjoy the fruits of their labor and spend quality time with their families. Traveling, revisiting old hobbies, and catching up with the old social circle seem ideal for anyone retiring. How do you even begin to check if you have the right ingredients for the retirement you have always desired?
7 Retirement Blunders to Avoid
Keep reading to discover seven retirement mistakes you should avoid to help you map out a plan that is right for you.
1. Delaying planning
Retirement seems so far away that if you’re in your 20s or 30s, you feel like you don’t really have to think about it. However, if you keep putting off planning, you risk entering retirement unprepared and eventually saying goodbye to your financial goals.
Therefore, it’s in your best interest to have a retirement plan long before you enter your golden years and collect your last paycheck.
Creating a retirement budget is an excellent way to start your planning. Consider the basic things, such as where you want to live, what activities you want to fill your time with, and what lifestyle you want to lead. Look for changes you can make today to reduce expenses, increase income, and accommodate medical issues in the future.
2. Not taking advantage of tax breaks
The Internal Revenue Service (IRS) offers tax breaks to encourage citizens to save for retirement. If you are over 50 years and have a lot going on in your life, it’s easy to overlook tax break advantages especially tailored for you.
Employees closer to the retirement age can put more into their Roth or traditional individual retirement accounts (IRA), employer-sponsored plans, or health savings accounts (HSA). Thus, they can deduct more income from their tax calculations.
In cases like these, it’s best to approach a financial expert to guide you through leveraging tax breaks.
3. Not using a company match
If your company provides a 401(k), enroll and maximize your contributions to take advantage of any employer match. This simply means that the company will match their employees’ retirement plan contributions; consider it an addition to your salary that will pay out over time.
It is additional money if your company has a similar matching program. Keep in mind that the IRS has a limit on total contributions for both employees and employers. The limit was $61,000 in 2022 or $67,500 with catch-up contributions.
4. Spending your retirement funds
Financial security does not happen by chance. Using retirement funds to enjoy your pre-retirement lifestyle is counterproductive and likely to result in a large tax bill. It can be tempting to dip into your savings before you retire, but resisting now can ensure a better retirement ahead of you.
5. Accumulating debt
It’s always a good decision to reduce debt and maintain good credit before and after retirement. Paying off loans and credit card balances helps with your credit score for better credit rates and terms if needed. Therefore, set aside money to pay off your debts before you retire.
6. Underestimating medical costs
It may be difficult to predict your medical requirements throughout your retirement. You need to plan for potential expenses such as insurance premiums, prescription costs, dental and vision care, and possible care if you require assistance with daily living. Consider long-term care insurance or set aside sufficient funds to cover long-term care if necessary.
7. Underestimating the impact of inflation
Whether or not inflation is making headlines, it will almost certainly impact your future spending power. Your retirement planning should take rising costs and a shrinking dollar into account.
You can learn how to invest when inflation is high and allocate a portion of your retirement savings to investments with the potential to grow. Numerous investment options for retirement can generate profit in the long run.
Start Planning Your Retirement Now
If you have made any of these mistakes, there is still time to start correcting them. You can save or take on additional jobs for more funds in your retirement account. Your commitment and efforts to your retirement plan today will be a significant investment in what you can enjoy in your golden years.
Avoiding these common retirement mistakes can help you achieve your goals while reducing the stress of planning. It’s a career-long journey with inevitable ups and downs. Staying on your plan and avoiding mishaps can help you get there faster and with less effort.