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5 Costly Mistakes to Avoid When Planning for Retirement
Retirement planning is so boring, we sometimes hear people say. Not to mention, squirreling away money for the future that you could use now is a challenge. A challenge that many people would rather avoid.
However, future you will be so grateful that present you made the sacrifices and took the time to plan for retirement.
Of course, if you’re going to go the effort, make sure that you do it right. Check out these five costly mistakes that you can avoid when planning for retirement.
1. Rely Solely on Social Security
Many people assume they will live on their Social Security checks in retirement and forgo saving for it altogether. This is a terrible plan.
According to the Social Security Administration, Social Security benefits only account for about 33% of older adults’ income today. If that’s all you have to live on in retirement, you might just have the basics to survive. No extras, no traveling, no enjoying those pursuits you’ve looked forward to, nothing.
2. Start Your Plan Too Late
When saving for retirement, it’s better to start late than never. However, you’ll have to work a lot harder to make your retirement goals.
Consider this, a 40-year-old planning to retire at 65 has 25 years to save. Say they start with $15,000 and add $500 a month. At 7% interest, they’ll have $472,932 when they retire.
Now, a 50-year-old does the same thing, but they only have 15 years to save. When they retire they will only have amassed $196,937. In order to reach the same amount, they’ll need to invest $1,385 a month!
3. Assume You’ll Stay Healthy Forever
Health care is expensive. Even if you have good insurance, there will be out-of-pocket costs you will have to pay.
Right now, you might be doing just fine, but are you prepared as you grow older? According to the Social Security Administration, men in the U.S. live to an average of age 84 and women to age 86. Have a plan in place for covering future health care expenses.
4. Borrow from Your Future Self
When you’re facing a financial dilemma, the money sitting in your retirement accounts might seem like a good way to solve it. While taking out a 401(k) loan can be a good move in some cases, most of the time it’s a bad idea to cash out retirement accounts or withdraw from your IRA.
You could be hit with penalties, taxes and other fees that don’t make it worth it. Think about exhausting all other options before turning to your retirement money.
5. Assume You’ll Want to Work
Some people can’t fathom the idea of not working. Taking this into account, they assume that they will be at least tinkering with something even in retirement and thus save up a smaller nest egg.
Don’t do this. You never know what the future holds. Your views about work could change; you might decide you want to travel or volunteer instead, or your health could deteriorate to the point that you can’t work.
Retirement Planning for the Win
Whatever age you are, it’s better to start planning for retirement now if you haven’t already. Every day that goes by only brings you closer.
We hope this short list of mistakes to avoid will help steer you in the right direction!
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