What Are Some Retirement Planning Mistakes One Should Avoid?

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Although it is hard for a young person starting out in business to contemplate retirement that is the ideal time to begin planning for your future. The years pass quickly and the earlier you start retirement planning the more comfortable and secure you should be when you retire.

  1. Take advantage of the 401(k) or similar retirement contribution plan offered by your employer. You will be saving money with pre-tax dollars so your net income is not impacted as much as saving after tax dollars. Try to contribute the maximum amount allowed by the plan. Some employers will add matching funds which increases the savings. When you are young you can take more risk with your investment strategy and as you age you should reduce some of those risks.

Be sure you are not paying excessive fees for the management of your retirement account.

If your employer does not offer a retirement contribution plan look into an individual retirement plan you can set up for yourself.

  1. Make plans to have your mortgage paid off before you retire. A mortgage free home leads to a feeling of security and eliminates a large monthly bill.
  2. Try to determine how much income you will need to maintain your lifestyle when you retire. If you are not presently living within your means you need to cut expenses and not go into debt to support a lifestyle. Do you really need the fanciest car or largest house?

Most people when estimating the income needed in retirement estimate too low. The general rule of thumb is that you will need approximately 80% of your current income in retirement. This estimate seems to me to be a little high.

Retirement Planning

When you retire you will be spending more of your income on eating out, traveling and entertainment. You want to have saved enough that these expenses will not be a drain on your finances.

  1. When estimating possible expenses in retirement you want to consider that you will likely have medical expenses. Medicare only covers a portion of your health care expenses and you will be responsible for the balance. In addition to Medicare you should have some additional supplemental health insurance. Even so, you will still be paying some medical expenses yourself.
  2. Think about Long Term Care Insurance. Many retirees need either in home care or care in a nursing home or assisted living facility at some time during their later years. These are big expenses so you should probably consider having some long term care insurance in place to cover ssome of these large expenses.
  3. In addition to saving in your employer’s retirement contribution plan you want to have savings and possibly investments o f your own. If you start saving when you are young the magic of compounding interest will increase those savings over the years.

Bear in mind that as you age you will not have the ability to replace the funds you may take out of your savings or investment accounts. You want to carefully consider why you are taking out money set aside for retirement funds to use for another purpose.

Review your retirement planning strategy every few years to determine if you are on plan to reach your goals.

Retirement can be a wonderful time of life especially if you have planned well for your financial security in your later years.