Everyone knows you have to save for retirement, but creating and following a proper plan is easier said than done. Whether it’s establishing a savings plan too late or collecting Social Security too early, mistakes abound when it comes to adequately funding our nest eggs.
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“The biggest mistake is retiring without any real plan or investment strategy,” says Nigel Green, the chief executive of the deVere Group, a financial advisory firm. “Most aspects of life require planning in order to maximise their chances of success, and retirement is no different.”
Here’s a look at four common mistakes to avoid when planning for your retirement.
Mistake No. 1: Taking Social Security Too Early
Current regulations dictate that you can not receive full Social Security benefits until age of 66 and 2 months for those born after 1955. But just because you are eligible, doesn’t mean it makes financial sense to claim benefits.
Too often people take their benefits too early because they are worried the program won’t be adequately funded in the future or they feel they are better investing the monthly payment, according to Kevin Luss, founder and president of the Luss Group.
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“The old paradigm that you retire at 59 is getting to be outdated,” says Luss. “People are living so long that if you retire at 65 you’ll have to live in retirement for 25 years or more.” The longer you wait to collect Social Security, the greater the monthly check will you start collecting. “There’s an exponential increase when you wait even one or two years longer.”
Mistake No. 2: Not Saving Enough
The general guideline when it comes to funding retirement is you will need 80% of your preretirement income to maintain your current lifestyle after work.
A recent surveyed conducted by the deVere Group found that even retirees able to create a $1 million nest egg are concerned they may not be able to afford their lifestyle in retirement.
“Despite their wealth, the vast number of respondents told us that their money does not go as far as they had expected due to constantly increasing prices,” says Green. “Our research shows that if you want to receive a pension of $33,000 a year, this currently requires pension savings of $485,000. Naturally, if you want a higher annual retirement income the required savings also increases proportionately.”
Mistake No. 3: Sticking to a Single Plan or Idea
Panic is starting to set in with soon-to-be retirees that haven’t saved adequately for their new post work life and according to Luss, that panic often leads to hasty decisions or the impression that whatever first decision made must be followed through to the end no matter what.
“They think retirement is a one-time thing so they don’t make the right decision,” says Luss. “It’s no different than any other process. There are always opportunities to make changes and to stop and do things differently.”
He advises segmenting retirement planning into 10-year intervals to make the process less stressful and easier to make investing decisions.
Mistake No.4 Relying on Work to Compensate for Retirement Shortfalls
Many workers who lost their retirement savings in the 2008 financial crisis or haven’t saved enough simply plan to work longer. But that might not always be an option.
“They think they can simply carry on working to make up for the shortfall in their retirement funds,” says Green. “Working past the retirement age is, in effect, their back-up plan.” This plan works if you remain healthy and the employer is on board.
“We all need to engage with the idea of saving for retirement. Too many people have a ‘live for today’ attitude, which is great in certain respects, but what happens when ‘tomorrow’ does come,” says Green. “There are, after all, only 240 salaries in 20 years.”