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Five Major (Yet Avoidable) Retirement Mistakes You Shouldn't Make

Expert Panel
POST WRITTEN BY
Elle Kaplan
This article is more than 7 years old.

While you can learn from your mistakes, it will be a very costly lesson if it happens during retirement. When you're young, it’s relatively easy to recover from financial slip-ups; you have years to recover and plenty more income to serve as a Band-Aid. But during retirement, your savings become your paycheck for the rest of your life – so any errors affecting it are far more drastic.

In my decade-plus of helping individuals retire, I’ve seen that even well-intentioned investors can make seemingly harmless decisions that affect their retirement. After all, retirement is still uncharted water for new retirees.

While there’s no crystal ball to see your retirement before it happens, you can anticipate and prepare for it. Thankfully, most of the mistakes that cause financial hiccups in retirement are avoidable. Here are some of those common slip-ups, and how to avoid them.

Procrastinating

A study from UCLA shows that we’re naturally hardwired to procrastinate because the allure of a short-term gain greatly outweighs any future reward. This plays out in a major way when retirement is years – even decades – down the line and there are infinite ways to “reward” yourself by immediately spending your money elsewhere. It’s not surprising that the majority of Americans are underprepared for retirement.

One tip experts at Harvard Business Review recommend to end this procrastination is to focus on the negative results that will stem from it. For retirement, focusing on your need to play catch-up and scramble later can provide some much-needed motivation. You’ll hopefully realize that by investing now, you can take full advantage of the power of compound interest and investing over time instead.

Not Using Employer-Sponsored Retirement Programs

It’s been found that a whopping 68% of working-age Americans (age 25-65) aren’t participating in employer-sponsored retirement funds. What makes this even more alarming is the fact that nearly all of these plans (98%, according to Aon Hewitt) offer an employer match. This is essentially free money on the table, where your employer will match (at least partially) the money you invest. I typically tell my clients to invest at least up to this amount because it provides an enormous return on investment, especially when paired with a 401(k) fund’s tax-free growth.

On the other hand, if your employer doesn’t offer a 401(k) or if you’re self-employed, don’t try to use this advice as an excuse to wait. Roth IRAs can be opened by nearly anyone and provide the advantage of tax-free growth. For the self-employed, it’s also worth looking into other options on top of that, like a SEP IRA or solo 401(k).

Not Planning For Healthcare Costs

Understandably, nobody likes to think about being sick. So it’s no small wonder that more 90% of Americans have no idea what their healthcare costs will be in retirement, according to Sun Life Financial.

However, thinking about getting sick isn’t being pessimistic; it’s being practical. Fidelity found that the average healthcare costs for couples in retirement are an estimated $245,000. Instead of being shocked by these costs in retirement (and having to overdraw from your nest egg), it’s relatively simple to plan ahead. A trusted financial advisor can help you account for these costs ahead of time, and there are ways to mitigate the costs by planning insurance-wise. That way, you can focus on feeling well instead of worrying about your finances.

Putting Kids Above Yourself

While I’m all for the support of kids, it can cause major problems when you want to provide for your adult child after they’ve left the house. According to Time Money, parents who support their adult child spend $1,000 to $5,000 per year, which could drastically eat into your retirement savings, especially since they're surprise costs.

I’ll sometimes remind clients in these situations that airlines tell you to put on your oxygen mask first in an emergency for a good reason: You can’t help others if you don’t help yourself first. While you can, of course, support your kids if it’s viable, they’ll end up having to eventually support you if you don’t make retirement planning a priority.

That’s why Time recommends coming up with a solid game plan for your kids to regain independence if you must support them. If “there are solid reasons that he can’t fly solo yet,” consider finding solutions together or offering specific monetary support for that one issue. They call it “tough love” for a reason, after all.

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Avoiding Teamwork

Besides the romantic benefits, retiring as a couple has plenty of potential for financial upsides. Couples can use teamwork to reach their financial goals quicker, and even more importantly, cover for each other when one has financial problems. Yet, as I revealed before, it’s the opposite case for most Americans – they leave each other in the dark financially and create more problems than they do solutions.

Starting an open and honest financial dialogue in a relationship (if it’s a serious one, of course), is a great way to nip this issue in the bud. Couples who begin discussing their financial goals early won’t only achieve greater financial success; they’re also a lot more likely to be happier.

Mistakes can drastically affect your retirement, but that doesn’t mean you have to learn from them decades down the line. With some proper planning and preparation now, you can secure your financial future for your entire lifetime.