For any pre-retiree, it is important to invest time, effort, and of course money into a long-term retirement plan. If you plan ahead, save diligently, and meet regularly with a financial planner, there is really no reason why you should not be able to enjoy a secure retirement. With that said, even the best planning does not guarantee a financially steady retirement—and in fact, there are several actions you might be tempted to take which could ultimately jeopardize your best-laid plans.
Retiring Too Early
Here’s just one example: Retiring before you’re really ready. This is not to say that an early retirement is impossible or even ill-advised; so long as you know the rules for retiring at age 55, and plan to do so, then that can certainly be a logical option. When we warn against early retirement, what we’re really discouraging is retirement at a date before you and your financial planner agree. Your plans for a prosperous retirement may hinge on you allowing interest to compound on all your retirement investments right up until you’re 65—and if you choose to retire even a year earlier than that, without consulting your planner, it could ruin your entire retirement plan.
Living Beyond Your Means
Another way to throw a wrench into your retirement planning is to live beyond your budget. When you first set out planning for your retirement, you should formulate a basic household budget—how much you’re actually going to need for your day-to-day retirement living. How much should you allocate for food, for travel, for pleasure, and for healthcare expenses? Will you still be paying rent, or paying off a mortgage? You need to review and revise the budget every so often, leading up to your retirement, but more than anything else you need to stick with it once retirement comes. Planning for a frugal retirement and then deciding you want to be come a lavish spender or a world traveler—well, that’s a recipe for financial shortfalls.
Going Into Debt
It is possible to do everything right while you’re planning your retirement—putting money into your IRA or 401(k), budgeting, meeting with your advisor, etc.—and still make one deadly wrong turn: Allowing credit card debt or other forms of debt to accumulate. The last thing you want to do is go into retirement with a massive debt that you have to pay off. In many cases, advisors will instruct you to pay off debt at the same rate, or higher, than you’re putting money into your retirement accounts—but that’s something to broach with your advisor.
Forgetting Healthcare Expenses
A final misstep that can jeopardize your retirement planning: Forgetting that you need to plan for healthcare expenses. We have said this before, but it is a critical point to consider. Estimating healthcare costs is frankly difficult to do, because you just have no idea what your needs will be and costs can quickly spiral out of control. The best approach is to work with your advisor to ensure you are adequately prepared for all contingencies.
Our aim is not to be alarmist, but simply to point out some potholes to avoid, on your own road toward secure retirement. To learn more, please contact our team of advisors today.