Retirement is up to you. With the near-extinction of traditional pension plans and the rise of individual retirement accounts such as 401(k)s, the burden of saving for retirement has shifted to personal responsibility.
This shift, combined with stagnant wages and rising living costs, has many Nevadans and Americans across the country concerned about whether they will have enough savings to maintain the lifestyle they desire in retirement.
The fear of outliving savings and concerns about Social Security benefits exacerbate retirement preparation anxiety.
We compiled a list of 15 mistakes Americans make that jeopardise their retirement plans. Avoiding these blunders and implementing safe financial strategies can significantly increase your chances of reaching your retirement goals.
1: Not Having a Retirement Plan
One of the most common and costly mistakes made by aspiring retirees in America is failing to develop a retirement plan. This oversight jeopardises their financial future.
A well-thought-out plan is more than a luxury; it is a necessity for long-term financial security.
Your plan should include savings goals, investment strategies, a retirement budget, and contingency plans for unforeseen events.
2: Not Saving Early
The sooner you begin saving for retirement, the more you’ll have saved. Delaying savings can significantly reduce the amount of money you accumulate by your 60s, making it more difficult to enjoy the peaceful retirement you desire.
Saving for retirement early is more than just a good idea; it’s a strategic move that can significantly improve your financial security in your golden years.
Prioritising early savings allows your investments to grow over time, resulting in a larger nest egg for retirement.
3: Not Preparing for Retirement Expenses
Accurately estimating your retirement expenses is an important step towards financial readiness. Many Americans underestimate the costs of home maintenance and health care, which can result in insufficient savings.
By keeping these expenses in mind, you can better prepare for retirement.
Aside from seeking the advice of a financial planner, it is always advisable to overestimate how much money you will require each month to live comfortably.
4: Failing to Use Employer Retirement Plans
Not taking full advantage of employer-sponsored retirement plans such as 401(k)s, particularly if they include an employer match, means losing out on free money.
The money is deducted from your paychecks, so you don’t miss out on any cash.
A substantial nest egg in a 401(k) plan can provide you with the sense of security you seek in retirement.
5: Borrowing Often from Retirement Accounts
Borrowing from your retirement accounts may appear convenient at the moment. However, doing so could result in serious consequences. If you’re in a financial bind, do your best to look into alternative borrowing options.
Early withdrawals are subject to taxes and penalties, which can significantly reduce your retirement savings.
In addition, if you lose your job, most plans require you to repay the loan in full.
6: Not Having an Emergency Fund
If you don’t already have an emergency fund, now is the time to start one.
Without an emergency fund, you may have to dip into your retirement savings during unexpected financial crises, both before and after you leave the office.
Nobody knows when car problems, job losses, or the need for major home repairs will arise. Even starting small keeps you ahead and safe in case of an emergency.
7: Underestimating Health Care Costs
According to a New York Life Group Benefit Solutions survey, Americans frequently underestimate healthcare costs. Ambulance rides, physical therapy, hospital stays, MRIs, and other tests can all be very expensive.
Even though many Americans are eligible for Medicare at age 65, it is still common to have to pay some expenses out of pocket.
None of us has a crystal ball, so budget for health care costs as much as possible.
8: Overestimating Social Security Benefits
According to a Nationwide Retirement Group survey of 1,315 retired or soon-to-retire Americans ages 50 and up conducted by The Harris Poll, nearly half (44%) expect Social Security to be their primary source of retirement income.
Unfortunately, relying solely on Social Security benefits is unlikely to cover your bills.
Visit SSA.gov to get an estimate of how much you might receive.
9: Taking Social Security Too Early
Sure, taking Social Security early feels great right now. However, receiving it too early can jeopardise your long-term financial security.
For example, taking Social Security at age 62 reduces your benefits by 30% compared to waiting until you’re 67.
Furthermore, some Americans claim Social Security before the age of 62. According to SocialSecurity.gov, benefits are reduced by five-ninths of one percent per month until the age of 36 months.
If the benefit exceeds 36 months, it decreases by five-twelfths of one percent per month. That is a financial “ouch” right there.
10: Overestimating Inheritance
It’s exciting to imagine relying on a large inheritance to supplement your retirement. However, inheritances are unpredictable, so the reality may differ significantly.
Specifically, if you do get one, it may not be as large as you expected.
Consider a possible inheritance to supplement your retirement savings. You never know, your loved one could outlive you.
11: Not Diversifying Your Investments
Relying on a single type of investment carries significant risk. Experts almost unanimously agree that diversifying your investments is safer because it provides more potential for long-term growth.
Of course, you must exercise caution when diversifying your investments; you most likely do not need to spread your money across 1,000 different stocks.
When in doubt, consult an investment professional.
12: Underestimating Longevity
Yes, you could pass out at the age of 65 while drinking your morning coffee. You could also live another 40 or more years.
Americans currently live an average of 75 to 80 years, with women outliving men. However, we are all aware that one can live much longer.
According to The Hill, a 60-year-old man can expect to live to 82, while a 60-year-old woman can expect to live to 85.
13: Ignoring Inflation
When determining retirement savings goals, inflation must be taken into account. Otherwise, what appears to be a manageable lump sum of change today will not be the same in 10, 20, or 30 years.
Although inflation is unpredictable, it cannot be ignored—as we have all seen in recent years.
So, if you’ve made the mistake of not including inflation in your retirement plans, start now.
14: Having Debt
Sometimes it’s impossible to be completely debt-free.
However, having less debt will boost your retirement savings while also reducing stress during your golden years.
Also, carrying debt into retirement prevents you from travelling and doing other enjoyable things. Retirement should be enjoyable, not stressful.
15: Not Hiring a Professional
Retirement is a serious subject, so hiring an expert can be beneficial. Financial advisors can assist you in charting a course for meeting your retirement objectives. Many even provide free initial consultations.
One of the best aspects of having a retirement advisor help you with your savings?
If your goals change, they can assist you in revising your strategy. Trust us—dealing with someone whose career involves managing finances reduces financial anxiety.
