 Thousands
of people every year have considered retirement in some point in their
lives. They retire from work to pursue something new and special, be it
to pursue a new career like volunteering, consultancy or freelance, or
to simply watch their grandchildren play. Whatever is the case or
purpose maybe, retirement has been one of the most memorable
experiences they have in life, and it is much worth-remembering
particularly if it gives you a better life in the end.
Retirement, contrary to what people believe, is
not the end of something great. The truth is, it is just the beginning
of a much exciting journey in life. So if you are thinking about
retirement, don't think that it would be the end of you enjoying the
pleasures that life has to offer.
It's not and will not be like that, particularly
if you will put some bits of effort and passion to it when planning.
Yes, planning is a vital part of a retirement. Your retirement wouldn't
be successful without it.
However, retirement planning will only yield
great results when cautiously considered. This is essentially where the
idea of proper retirement planning comes in, which is but commonly
defined as involving the process of setting and establishing a
retirement income goal that may help you prepare for your life in the
future. That's pretty self-explanatory though, but there are still
others who view retirement planning as something to which is not very
much important. They rather think of retirement planning as something
that is restricted only to investment and saving. You only invest in
order to save. Well, with this kind of perception, it's no wonder that
many have committed certain retirement planning mistakes at some point
in their career.
If you want to know what these common retirement planning mistakes are, then just sit back, relax, and enjoy reading.
Procrastinating
Procrastination is by far the most common error
that people planning for retirement generally make. Well, this error
stems from the notion that because retirement may be many years away,
it would be easy and even better to postpone planning for it. Also,
many people tend to put off retirement planning because they have
something more important and more urgent to do. They still need to
finish their projects at the work force and they simply enjoy working.
Well, your reason maybe for putting off
retirement planning is to some degree nice or good. But, always
remember that every people age. Days pass by and that your chance to
save for your future slips off every day. The more you age, the lesser
your chance to prepare for it, and the worse your life after retirement
will be. So as early as possible, start planning for your retirement.
You may find it odd especially if you are still on your 20s. But the
truth is, millions of young adults these days have already considered
retirement planning. They simply do it for the reason that the longer
they wait, the harder it is for them to make up the difference later.
Also, they do this knowing that the sooner they will start saving for
their life after retirement, the more time for their investments to
grow. They even realize that if they will start planning for their
retirement earlier than usual, the more chances for their retirement
goals to be achieved.
So don't wait. Start thinking about your
retirement and what lies ahead. Generally, the more time you give
yourself, the better.
Not Taking Full Advantage of the Company's Retirement Benefits
There are some cases in today's highly
competitive world when companies offer particular retirement benefits
to their employees. They tend to offer particular forms of retirement
plans, like the most popular IRA and 401K plans. Well, no matter what
kind of retirement plan is offered in your company, ensure to take full
advantage of the benefits given to you. According to some experts, it
is better to invest as much money into your retirement plan as you can
afford.
But note that the phrase "...as you can afford'
doesn't mean that you have to make debt just to invest to your company
retirement plan. Borrowing for bucks is not a good idea. The truth is,
it will only ruin your plan and make yourself deep down in debt. So if
you don't want that to happen, avoid borrowing. Just invest what you
have in your pocket, but watch out for certain contribution limits.
Some plans like IRA and 401K have certain limits set on the
contributions. So just make sure at the very minimum, you invest enough
to obtain your company matching funds in case they are offered.
Relying on Social Security
It is probably true that you may have paid into
the Social Security system for more than three decades now. While the
system may sound useful to you particularly that you are planning for
retirement, don't just think and believe on the idea that your Social
Security plan will cover everything you'll need in the future. This is
not always the case. As a matter of fact, the potential impact of
Social Security on your retirement income is losing ground. Perhaps the
best that it can give you is a safety net to retirement income, but
once you decided to retire early, that is, prior to the normal
retirement age fixed by law, your Social Security benefits will tend to
be permanently reduced.
So when planning for retirement, it is best not
to rely heavily on the Social Security benefits. Instead of relying
your future much on the social security benefits you are entitled to,
try to consider other alternatives. There are several other choices for
you to consider though, so make use of them as your income back up.
Perhaps you may like to apply for a company pension or retirement or a
personal savings plan as a back up to your social security when you
retire.
Miscalculating How Much You'll Need in Retirement
Another biggest retirement planning error you can
make is to miscalculate the amount you will need to support all your
demands after leaving the work force. Many retirees have fallen victim
to this trap. They thought that what they have is already sufficient
for them to live comfortably after retirement. The truth is, they lack,
and their retirement plans turn out to be not well-supportive.
To avoid such kind of error, it is very much
important to note in the first place that while doing retirement
planning, the usual percentage of the amount you will tend to have to
support your living after retirement is about 70 to 80% of your
pre-retirement income after you decided to quit from your work.
However, the budget you need to consider somehow
depends highly on the way you live your life. If you find yourself
living lavishly, but earning less, then there is a possibility that the
70 to 80 percent of your pre-retirement income would not be enough to
support your lifestyle. But it could also be inconceivable that you may
need to save 100% or more of your pre-retirement income, just to live
comfortably after retirement.
Whatever is the case maybe, saving for your
future is simply the key to a comfortable life after retirement. It is
very much important knowing that the Social Security poses a future
that is unsure and that fewer and fewer people are only covered by the
traditional pension plans nowadays.
It is best for you to consider everything that
would possibly be involved in the plan to estimate your how much you
will need after retirement, primarily the overheads you may encounter.
Also think about what you want after retirement. Are you planning for a
vacation travel, maybe to the Caribbean, or to Hawaii? What about your
mortgage? Is there a great possibility for it to be paid off? Do you
have certain expenses not covered by insurance or Medicare? The rule of
the thumb here is to simply think about your current and future
expenses. Ask yourself how these expenses might change between now and
the time you leave the work force.
Underestimating and Ignoring Tax-Favored Retirement Plans
Companies generally offer certain forms of
retirement plans to their employees. Most of these plans, however, are
based on contributions, but they are great enough to support your
living after retirement.
Speaking of retirement plans, perhaps the best
method you to accumulate funds for retirement is to take advantage of
the benefits offered by the Individual Retirement Accounts (IRAs), as
well as the employer retirement plans such as the 401K, 403B, and 457B.
These plans are designed to simply help employees create a saving that
they will need after retirement. Also, the reason that these plans are
significant is that they come with the combination of power of
compounding with the benefit of tax deferred growth. So if this is the
case, it is then best to put as much money as you can afford into the
plan, be it pre-tax or after-tax. But if the case involves the matching
contributions coming from your employers, contributing enough amounts
to get the full company match could be the best thing to consider.
Putting Investments in the Wrong Places
It is typical to see many people saving a
significant portion of their income. The problem then occurs when they
put their investments in the wrong places. There are some employees
thinking and planning to retire from work who save just to support the
education of their children. They tend to focus just on that purpose
that they forget to realize that they still need to save much for
themselves. As what many experts say, retirees need to consider their
own retirement "nest eggs" for if they will only focus on financing the
education of their children, they will end up losing a portion of their
retirement income.
Of course it is given that the purpose - to
finance the children's education - is good, but the truth is there are
some possible ways of supporting an education. Scholarships, grants,
student loans, work-study programs, and a lot more are actually out
there to help your children finish a degree in college. So the point
here is that, not to rely much on your retirement income and not to
place your investments merely on a particular aim.
Ignoring Review of the Plans
It is often suggested that if you wish to raise
money as much as you can for your life after retirement, there's no
better move to take than to review your retirement plans as regular as
possible. Forgetting or ignoring the review of your plans on a regular
basis may lead you one day to losing a part of your retirement income.
Worse is that you may even find yourself gaining not much benefits
because of a diminishing retirement income. So to avoid this, you
certainly need to practically review everything that is involved in
your retirement plan, be it your asset allocation, your balances, your
retirement goals, so on, and so forth. Well, this is deemed so
significant as this will help you insure that you are making the most
of your retirement plan.
Note that ignoring the review of your plans is
also the same with not monitoring your investments. If this mistake is
not eliminated, the tendency is you will not know what discrepancies
are attached to your investment plan and you will remain blind as to
when is the best time to switch to a different plan to gain much. So
never ever do this mistake.
Relying Too Heavily on the Company's Stock
Many people have fallen victim to this retirement
planning error. They think and believe that owning many shares of the
company stock will show their loyalty to the company. The truth is, it
does not and it will never be. What you have invested on the company is
simply an investment and just like the other investments, it can go
either way. So while you want to own some shares in your company,
perhaps the best way you can do is not to place your money too much on
your company's stock. There are other some alternatives out there where
you can invest and earn profits. So the rule of the thumb is to spread
your assets around.
Failing to Seek Help from the Experts
Many people think that retirement planning is
simply a do-it-yourself process. This is true especially to those who
believe that they are expert enough into handling their own
investments. Well, in the first place, it seems that doing the
retirement planning by yourself is a good idea especially that you know
how to handle your investments. The real catch is, retirement planning
involves reviews and re-reviewing of the plans with an expert. This is
important as an expert, particularly a certified financial planner, can
help you figure out some areas of concern that you have overlooked. He
or she may even help you address them if there is such a thing. Perhaps
the most important idea to note here is that retirement planning is not
just a one-time process. You need to consider reviews of the plans on a
regular basis to pinpoint areas that need to be changed or adjusted. So
don't rely much on what you can do. Seek for help if possible.
When people hear the term "retirement planning",
they often think that it simply involves making brilliant decisions.
While they may be right in the first place, the real score is that
avoiding the retirement planning mistakes can often be the key. So if
you want to get the best chance of achieving your retirement goals,
then start looking at your own self and eliminate the deadly mistakes
such as those mentioned above.
Withdrawing from the Wrong Accounts
When planning for retirement, it is a standard
rule and advice not to withdraw from the wrong accounts. The
term "wrong accounts" in fact refers to tax deferred accounts. So don't
ever
withdraw money from this account. Instead, let it grow and just
consider or withdraw from your taxable account if you wish to pay for
your retirement. Nevertheless, this may not always be the best option,
particularly for those who have a higher income. The reason perhaps is
that they may have taxable investments that have accumulated large
capital gains. In this case, it is expected that you might prefer to
just leave behind the assets to your heirs knowing that they will
receive them with a step-up in basis. According to some experts, such
kind of basis will eliminate the capital gains tax. These taxes may not
be estate taxes, however.
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