Your retirement may be far off, but you need to start your retirement planning early. That’s because whether you like it or not, sooner or later, you’ll have to retire someday. Putting off retirement planning is a huge mistake. Below are six of the biggest retirement mistakes people make, and how you can avoid them.
If you haven’t yet started to plan your retirement, you are not too late to begin. Start it now. Most retirees step into retirement without a plan only to regret it later. Given below are the 6 most common retirement mistakes retirees make.
Retirement Mistake 1: Not investing early
Most people begin investing for retirement by the time they are 40. It is a decent time to start, but not the best.
Learning: If you want your retirement to be a worry-free phase of your life, start investing as early as in your 20s. The reason? Your investment gives high returns over several decades of time. That’s the power of compounding interest!
Retirement Mistake 2: Not making informed decisions
Some people get heavily influenced by a persuasive salesman. They invest only to regret it later.
Learning: Don’t make hasty or random investment decisions. First, you need to figure out how you will allocate your funds optimally to build your portfolio. Make sure that your portfolio has adequate stock/bond allocations based on your investment period. That’s the key to a successful investment.
Retirement Mistake 3: Investing a major chunk of your savings in employer’s stock
Some people invest their years of savings into their employer’s stock. Investing in the company is a good thing, however, putting a massive chunk of your savings is not a wise idea. If the employer goes bankrupt or shuts shop, you are at risk of not only losing your job but your money too.
Learning: As a rule of thumb, invest only 10% of your portfolio into your employer’s stock.
Retirement Mistake 4: Not choosing a retirement plan considering the tax bracket
Some people invest in retirement plans only to find later that they are taxable.
Learning: There are many types of IRAs you can choose from. If you are in the early stages of your career, you are in the low tax bracket. Use this to your advantage and invest in Roth. But when your career progresses, you start to earn more. A traditional 401(k) or IRA is a better option then. To decide which retirement plan is better, consider the tax bracket you are in currently and would be at retirement. It may be not possible for you to predict your retirement tax bracket, so it’s best to contribute to a traditional 401(k)/IRA and a Roth.
Retirement Mistake 5: Claiming your social security too early
Most people take their social security benefits at the age of 62 only to realize that they do not have much retirement funds left by the time they reach 70 years of age
Learning: Don’t be in a hurry to claim your social security benefits. Wait till you reach your full retirement age (67 years) or even longer because the benefits will be at its highest.
Retirement Mistake 6: Focusing only on the financial aspect of retirement and not your retirement as a whole
Some retirees tend to feel lost and confused after they retire.
Learning: As a rule of thumb, don’t retire from something; retire to something.
Retiring from work doesn’t mean that you should retire from the things you love. Keep yourself occupied; run a small business that helps you earn some income or join an NGO. Do the things you love.