To retire well, you need a disciplined savings plan, a good understanding of social security, a sound investment strategy and a vision of retirement that provides sufficient self-development without exceeding your fixed-income budget. Behind these simple principles lies a complex set of ways things can go wrong, ranging from borrowing against your 401(k) to taking up smoking later in life. However, there are certain things you want to avoid at all costs.
A financial advisor can help you keep your pension on track.
Doing retirement right and wrong
It is certainly not impossible or even rare to achieve a financially secure and rewarding retirement. According to the Census Bureau, people over the age of 65 are much less likely to live in actual poverty than those who are still working. And retirees surveyed by the Employee Benefit Research Institute (EBRI) in 2022 rated their satisfaction with life after retirement an average of 7 on a scale of 1 to 10.
However, that doesn’t mean things can’t go wrong. After all, according to the Census, more than 1 in 10 retirees live in poverty. And 27% of EBRI respondents said their expenses were much higher or slightly higher than they could afford.
Five pension mistakes you should avoid
Every retiree’s case is a little different, and it’s likely that the people who don’t have a great retirement have a lot of stories about how things didn’t turn out well. Still, we can make some useful generalizations about the key retirement mistakes to avoid. Here are five of the worst:
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It is not possible to plan
Perhaps the biggest mistake that can be made is to pretend that retirement will never come, when for the vast majority of people it will. According to the Social Security Administration, approximately 67.8% of men born in 1980 will live to be 65. For women, this figure is 80.9%. Failing to plan for retirement leads to more mistakes, such as failing to budget, save and invest to finance living expenses later in life when working becomes difficult or impossible. It’s worth noting that EBRI’s research found lower feelings of well-being and satisfaction among those who didn’t use a financial advisor, among other characteristics.
Mismanagement of tax-advantaged pension plans
Failing to contribute enough to your workplace’s IRA or 401(k) to get the maximum employer match is one of the worst retirement savings moves you can make. You may borrow from a short-term plan and not pay it back. Another rival with the worst move is early withdrawal of funds, which can get you expensive fines. Investing pension funds exclusively in your employer’s shares rather than diversifying is also highly rated as a seriously risky and potentially catastrophic mistake.
Ruining social security
When it comes to nearly universally available, nearly completely reliable ways to finance retirement, nothing compares to Social Security. To qualify for monthly benefits for as long as you live after reaching the qualifying age, you simply need to work the required number of years while contributing through mandatory payroll taxes.
However, this apparent simplicity masks a number of complexities, and failure to navigate them can take the shine off your retirement. For example, if a member of a retired couple dies, the surviving spouse must continue with only one monthly check, the larger of the two. For this reason, the spouse with the highest income should wait as long as possible to claim benefits, as delaying filing increases the monthly payment. SmartAsset’s Social Security Calculator will help you avoid mistakes and make the most of this benefit.
Emotional investing
The investment field almost seems designed to punish people who make investment decisions based on feelings of fear and greed. For example, if you go into turmoil and sell securities during a bear market to convert them into safe-seeming cash, you are essentially locking in losses and making it harder to participate in a future rebound.
Studies have shown that the best approach is to stay fully invested, in both good and bad times. Trying to time the market, especially based on your emotions, is one of the least promising investment strategies you can have.
Only focused on the financial side of pension
Retirement is only partly about money. You will also need to find ways to fill the time you spend at work, preferably in ways that maintain or improve your health and enrich your life. Unfortunately, that is not always the case. A 2018 National Bureau of Economic Research study found that mortality among men increases by about 2% at age 62, a common retirement age. The increase is smaller in women and not at all in both sexes at other ages.
It is not clear why retirement seems to cause more deaths. However, most of the increased deaths are due to traffic accidents, lung cancer and other respiratory diseases linked to smoking, while other studies tend to find job losses at any age. No amount of smart employer matching can help much if you’re not around to enjoy your non-working years at all.
It comes down to
Probably the biggest mistakes in retirement are not planning to retire at all, not taking full advantage of retirement savings plans, mismanaging Social Security, making poor investment decisions, and neglecting the non-financial side of life. pension. However, it is possible to avoid all of this by being aware of the potential for costly mistakes and taking some relatively simple and proven steps to counter them.
Retirement planning tips
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By working with a financial advisor, you have a better chance of avoiding retirement planning mistakes. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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SmartAsset’s pension calculator gives you insight into how well your pension savings plan is doing. It offers a quick, easy, yet sophisticated – and cost-free – way to unravel the mystery of how much money you’ll have when it’s time to retire.
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Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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