Making these money mistakes could leave you struggling financially during retirement.
Planning for retirement is not easy. It can be complicated, and it’s no surprise that many people make mistakes that can turn their retirement dreams into stressful situations.
As retirement gets closer, there are many things to think about. You have to decide when to start collecting Social Security, how much money to take from your 401(k), how to create a spending plan you can stick to, and how to invest your retirement savings. Even small choices you make now can lead to major changes in your life later.
That’s why it’s risky to try doing it all by yourself.
A study by Northwestern Mutual showed that 71% of U.S. adults say they need to improve their financial planning. However, only 29% of Americans actually work with a financial adviser.
The value of working with a financial adviser can vary from person to person. Still, one independent study found that people who work with a financial adviser feel more confident about their finances and could end up having about 15% more money to spend during retirement.
But the big question is, who can you trust for financial advice? In the past, you would have had to find a stranger and hope for the best. Luckily, that is no longer the case.
Today, there are free online services that make finding a good financial adviser much easier. You simply answer a few questions, and then you are matched with up to three local fiduciary financial advisers who are legally required to act in your best interest. The process only takes a few minutes, and often, you can quickly connect with an expert for a free consultation about retirement.
This is definitely something to consider if you have investable assets worth more than $100,000. In the meantime, here are five major retirement mistakes and how you can avoid them:
1. Not Making a Plan
A happy retirement is one where you are not stressed about money. And how do you reduce stress? You do it by making a clear plan.
Think about it: if you want to visit a place you have never been before, do you just get in your car and drive around, hoping you find it? Of course not. You figure out where you want to go and then follow a map to get there.
A financial plan is like a map for reaching your retirement goals. It helps you figure out what you want to do, where you want to live, how much it will cost, and how you will pay for it. And if your plans change as you get closer to retirement, that’s fine. It’s your plan, and you can change it whenever you need to.
Does creating a plan sound complicated? It can be. Investments, taxes, and your ideal retirement date are just a few of the many things you have to consider. That’s why this is one of the most important times to get help from a professional. Hiring a skilled financial planner can help you avoid getting lost and make sure you reach your destination.
2. Waiting Too Long to Start Saving
A recent survey by Bankrate.com found that the biggest financial regret people have is not saving enough for retirement. And why do so many people fall behind? Because they delay saving, telling themselves, “I’ll save when I have more money,” or “I’ll start saving when retirement is closer.”
But the truth is, the longer you wait, the harder it becomes. It is much better to start small and early than to start big and late.
If you are behind on saving for retirement, a financial adviser may help you figure out how to catch up. They can also guide you on investing, budgeting, and paying off debt.
While no one can guarantee better returns, a good adviser might help you get more from your investments. For example, if you save $500 a month for 40 years and earn an average yearly return of 5%, you could end up with almost $725,000. If you earned 10% instead, you could retire with about $2.7 million. That is a huge difference.
Again, there is no promise that working with a professional will always outperform doing it yourself. But small improvements over time can make a big difference in your retirement.
3. Retiring Too Early or Too Late
If you are thinking about retiring soon, it can be tempting to leave work and travel the world. But before making that decision, it’s important to think it through. You might live longer than you expect, face unexpected health problems, or run into financial trouble that forces you to spend less than you planned.
This does not mean you should avoid retiring early if that’s your goal. But you should plan carefully and check if your savings will truly support you for the rest of your life.
The same idea applies to delaying retirement. If you are unsure about your savings, you might work longer than you really need to, simply out of fear. You are better off knowing where you stand. Having a clear understanding of your finances can help you retire when you want to, not when you feel forced to.
If you are getting close to retirement, it is smart to meet with a financial planner to figure out the best time to retire based on your situation.
4. Choosing the Wrong Financial Adviser
Finding the right financial adviser is a big decision that can affect your future. Sadly, not all advisers are good at their jobs. If you pick the wrong one, you could end up in a worse financial situation.
When it is time to look for help, talk to a few different advisers. Ask them the same questions and compare their answers. Find out how they get paid, how much experience they have, and whether they are a fiduciary. A fiduciary must always act in your best interest, which is exactly what you want.
Today, finding a trustworthy financial adviser doesn’t have to be difficult. You can use a free online service that matches you with up to three vetted fiduciary financial advisers in just a few minutes.
If you want help reaching your financial goals, getting matched with a good adviser is a smart move.
5. Taking Too Much Risk or Not Enough
Risk plays a big role in investing. If you take too much risk, you might lose a lot of money. If you take too little, your savings might not keep up with inflation.
The money you have when you retire is important because you cannot easily replace it. That’s why, as you get older, it makes sense to choose safer, lower-risk investments. However, if you are too cautious, inflation could slowly reduce the buying power of your savings.
The key is to find a balance. You want investments that provide steady income, protect against inflation, and keep risks under control. Your retirement plan should include safe, reliable income sources, but also have some investments like stocks that can help you keep up with rising costs.
You can learn how to manage this balance yourself, or you can work with an investment professional who can guide you before and after retirement.
