No one ever plans to find themselves struggling financially in their golden years, but for many Americans, it happens. Inflation rate continues to rise every year, increasing the cost of living and our overall spending. Financial planning is not only necessary for retirement, but also vital to every stage of life, including the unexpected. For most people, it can be challenging to find the time to outline a strategy and take action towards reaching financial goals. However, doing so, will make a substantial difference in how quickly you can be prepared for retirement.
Mistake No. 1: Postponing the inevitable
Any Certified Financial Planner (CFP) or industry expert will tell you retirement should be your number one priority. They’ll also mention that the earlier you start, the easier it will be to gather funds for the lifestyle you plan to enjoy later on. Realistically, the longer you wait, the harder it is to save continuously for that specific point in time. The closer you are to reaching retirement, the more aggressive and risky your investment strategy will have to be in order to reach your goals at a faster pace. A great way to determine how much you need to save and how long it will take you to get there, is by using an online retirement calculator.
Mistake No. 2: Not planning for the unexpected
It’s absolutely important to plan for unexpected life occurrences. Stuff happens — all the time. Most people do not plan for unfortunate moments, leaving them with no choice, but to deplete any investments and retirement funds they may have, or acquire loans and credit cards to help them get by. By making monthly contributions to a separate fund, where cash is easily accessible, you can assure your investments are left untouched and you still have some cushion for a rainy day. Experts say, a good rule of thumb would be to have nine months to one year of income in your emergency fund.
Mistake No. 3: Spending like there’s no tomorrow
Many of us are guilty of this. We all have something we enjoy spending a pretty penny on. It’s not an easy task to simply stop spending on things you truly enjoy, or like to have, however, setting a budget for these little luxuries can really put spending habits into perspective. You may even find that some things aren’t really worth it — helping you allocate unnecessary spending to something more substantial, like retirement.
Mistake No. 4: Not considering the cost of healthcare
Research shows that most people believe Medicare will cover the majority of their healthcare costs post retirement, which is not the case. According to the Employee Benefit Research Institute, a 65-year old couple retiring today would need about $151,000.00 to have a 50% chance of meeting healthcare costs during retirement. This estimated figure does not include long-term care costs, such as nursing home care. With numbers like these, you simply cannot afford to not calculate healthcare costs in your retirement planning. A good tool to use is the new AARP healthcare cost calculator which can help you estimate how these costs will affect your retirement.
Mistake No. 5: Not having a strategy
You may think by simply saving and investing you’re preparing yourself for all that retirement has to offer. Not so, one of the worst mistakes you can make is not having a plan of action. You actually need to have a plan in order to determine how much you will need for retirement, how you’re going to get there and how you can spend it. Without an investment strategy you may not have enough when that time comes around. Seeking professional assistance may be well worth the cost for those who don’t have the time to devise a strategy themselves.