Retirement Mistakes You Want to Avoid (0012)
Nobody wants to wake up during retirement and discover that your retirement savings can’t support your retirement lifestyle. Proactive planning always provides more options than reactive ones.
Here are three retirement mistakes a proactive plan can help you avoid.
Unrealistic goals
It is OK to dream and even healthy and motivating at times…but remember…reality is your friend. Your retirement goals can stretch you a bit but make sure they are not delusional.
The process is relatively simple.
Start by estimating how many years you have before retirement.
Estimate the one-time (dream purchases) and annual fixed expenses you expect to have during retirement.
Estimate how long you plan live. (Remember, we are living longer)
How much can your retirement plans, investments, and savings produce before you begin retirement?
Do the math!
Adjust as needed.
2. Managing Risk
Managing risk becomes easier the more time you have. Bear markets have always recovered over time, but realistically, the more time you have, the better chance you can experience the recovery and potential growth.
Also, managing risk on the expense side is critical. Unknown expenses during retirement always pop up. For example…health care, long-term care, and possibly helping your adult children through a financial hurdle. The earlier you plan for those unknowns the better.
3. Starting your retirement planning too late
Time is of the essence when it comes to retirement planning. If you wait only a few years, you may have to significantly adjust your monthly contributions to compensate for lost time.
First let’s look at the following scenario of a 40-year-old planning to retire at 65:
Current principal: $20,000
Monthly addition: $500
Years to grow: 25
Interest rate: 7% (Using for this illustration only)
Total savings after 25 years: $488,042.88
Now let’s compare to 50-year-old planning to retire at the same age of 65.
Current principal: $20,000
Monthly addition: $500
Years to grow: 15
Interest rate: 7%
Total savings after 15 years: $205,954.76
In order to save as much as the 40-year-old by retirement, the 50-year-old would need to almost triple their contribution ($1400 per month).
Remember, proactive planning is always better than reactive. And the sooner you start…the better.
If we need to have a proactive or reactive conversation, click this link, and let’s schedule a time to talk.