Pitfalls to Avoid when Planning for Retirement
Retirement is a big deal for virtually everybody. Those fortunate enough to live into their golden years have often spent decades upon decades mapping out how they’d save their money. However, once one reaches retirement, it’s impossible to go back in time and plan for retirement more appropriately.
As such, it’s important to plan for retirement far ahead of schedule. Unfortunately, the majority of United States citizens aren’t taught how to manage their money, especially for retirement – making sense of 401(k) retirement accounts, IRAs, reverse mortgages, and the like is often extremely difficult.
Let’s glance over six pitfalls every upcoming retiree should avoid when planning for retirement – pay attention, take notes, and remember – you’ll be planning one before you know it.
Underestimating Your Future Cost of Living
Too many seniors underestimate their future cost of living. Doing so can cause you to deplete your saved-up stores of cash too quickly. If anything, overestimate what living for the next thirty to forty years will cost, and adhere to such a plan.
Not Maximizing Employer-Sponsored Retirement
A majority of employer-sponsored retirement plans feature employer matching up to a certain portion of your income. For example, if an employer offers matching up to 8% of earnings, and you earn an income of $100,000, you could put away $8,000, with your employer matching another $8,000.
That’s free money in the amount of $8,000! While you typically can’t withdraw such retirement income without significant penalties, it’s silly of you to turn down such extra payment.
Investing, in its simplest form, involves converting currency into commodities, bonds, stocks, mutual funds, and other assets that may fluctuate in value. If the overall value of such assets rises over time, some investors would tend to think their investing strategy is good enough to operate their portfolio in real-time, without holding them for several weeks, months, or years. Almost always, active investing is a mistake, often resulting in substantial losses due mostly to human judgment error and making bad decisions thanks to cognitive biases.
Always, always, always hold your retirement portfolio as a passive investor. Any growth-stock mutual fund worth its weight in salt will generate substantial returns over the long-run. To clarify, passive investing means to place your assets in safe investments and hold them for years at a time, or at least rarely sell your holdings once they’ve been purchased.
Buying New Vehicles
Cars, trucks, boats, recreational vehicles (RVs), and other vehicles depreciate over time, meaning you’ll lose most money you put into such vehicles. As such, you should aim to own a used vehicle older than four years of age.
Not Having a Plan in the First Place
If you don’t have a plan, your retirement is in big trouble. Get a sensible, reasonable plan immediately.
Holding Substantial Stock from Past Employers
Employers often offer stock as compensation, which increases loyalty and drive in the workplace. However, once you retire, you should sell off such stock and diversify funds immediately.
Many people purchase life insurance. However, life insurance payouts can only prove advantageous if you pass away, meaning only others can benefit from the redemption of such policies. If you have a life insurance policy, consider setting up a life settlement, in which you sell it to a third party for more than the surrender value, but less than the net death benefit.