15 Mistakes Americans Make That Hurt Their Retirement Goals
Retirement: It’s on you. With the (essentially) disappearance of traditional pension plans and the rise of individual retirement accounts like 401(k)s, the pressure of saving for retirement has shifted to personal responsibility.
This shift, coupled with stagnant wages and rising living costs, has left many Americans anxious about whether they’ll have enough saved to keep the lifestyle they hope for in retirement. The fear of outliving savings and concerns about Social Security benefits add to retirement preparedness anxiety.
Mindfully American curated a list of 15 mistakes Americans make that hurt their retirement goals. Avoiding these blunders and implementing safe financial strategies can greatly improve your chances of achieving your retirement goals.
1: Not Having a Retirement Plan
One of the most common and detrimental mistakes American retirees-to-be make is not creating a retirement plan. This oversight leaves their financial future vulnerable.
A well-thought-out plan is not just a luxury but a necessity to safeguard your financial security in the long run. Your plan should include savings goals, investment strategies, a budget for retirement expenses, and emergency plans for unexpected events.
2: Not Saving Early
The earlier you start saving for retirement, the more you will have saved. Delaying savings can significantly reduce the amount of money you accumulate by your 60s, making it harder to have the relaxing retirement you dream about.
Starting to save for retirement early is not just a good idea; it’s a strategic move that can significantly boost your financial security in your golden years. By prioritizing early savings, you can give your investments more time to grow, leading to a more substantial nest egg for retirement.
3: Not Preparing for Retirement Expenses
Accurately estimating your retirement expenses is a crucial step toward financial preparedness. Many Americans underestimate the cost of home upkeep and health care, which can lead to insufficient savings.
By being mindful of these expenses, you can better prepare for your retirement years. Aside from seeking the support of a financial planner, it’s always best to overestimate how much money you’ll need each month to live comfortably.
4: Failing to Use Employer Retirement Plans
Not taking full advantage of employer-sponsored retirement plans like 401(k)s, especially if they offer an employer match, means missing out on free money. The money is taken from your paychecks, so, in a way, you don’t miss that cash.
Having a substantial nest egg in a 401(k) plan can provide the sense of security in retirement you’re after.
5: Borrowing Often from Retirement Accounts
Borrowing from your retirement accounts may seem convenient at the moment. But doing so could have serious consequences. If you’re in a financial bind, do your best to seek out other borrowing options.
Early withdrawals are subject to taxes and penalties, which can significantly reduce the amount you’ve saved for retirement. In addition, if you lose your job, most plans expect you to repay the loan in full.
6: Not Having an Emergency Fund
Retirement or no retirement, if you don’t have an emergency fund, the best time to start one is today. The lack of an emergency fund can lead to tapping into retirement savings during unexpected financial crises—both before and after you’ve bid the office goodbye.
No one knows when car issues, job loss, or the need for a major home repair will occur. Even starting small keeps you ahead and safe if and when an emergency occurs.
7: Underestimating Health Care Costs
According to a New York Life Group Benefit Solutions study, Americans frequently underestimate healthcare costs. The cost of an ambulance ride, physical therapy, a hospital stay, MRIs, and other tests can be extremely high.
Even though many Americans are eligible for Medicare starting at 65 years old, it’s still common to have to pay some expenses out of pocket. None of us have a crystal ball, so plan accordingly finance-wise for health care costs as much as possible.
8: Overestimating Social Security Benefits
According to a survey by Nationwide Retirement Group, conducted by The Harris Poll of 1,315 U.S. adults ages 50 or older who are retired or plan to retire soon, nearly half (44%) of Americans expect Social Security will be their primary source of retirement income.
Unfortunately, relying solely on Social Security benefits will not likely cover your bills. To estimate how much you may receive, visit SSA.gov.
9: Taking Social Security Too Early
Sure, taking Social Security on the early end feels great at the moment. But receiving it too early can impact your long-term financial security. For example, taking Social Security at 62 reduces your benefits by 30% compared to if you wait to take it until you’re 67.
Furthermore, some Americans take Social Security before the age of 62. However, SocialSecurity.gov states that they reduce benefits by five-ninths of one percent each month before that age, up to 36 months. If the benefit exceeds 36 months, it reduces by five-12ths of one percent per month. That’s a financial “ouch” right there.
10: Overestimating Inheritance
Planning to rely on a hefty inheritance to supplement your retirement is fun to dream about. The reality can look a lot different, though; inheritances are unpredictable. Namely, they might not be as large as you expect if you end up getting one at all.
Consider a possible inheritance as a supplement to your retirement funds. You never know; your loved one might outlive you.
11: Not Diversifying Your Investments
Relying on a single type of investment carries high risks. Experts pretty much unanimously agree that it’s safer to diversify your investments, as it offers better potential for long-term growth.
Of course, you have to be careful not to over-diversify your investments—you probably don’t need to spread your money across 1,000 different stocks. When in doubt, speak with an investment professional.
12: Underestimating Longevity
Yes, you could keel over at the age of 65 while drinking your morning coffee. You could also live for another 40+ years.
Currently, the average lifespan of Americans is 75 to 80 years old, with women outliving men. But we all know one can live much longer than that. According to The Hill, a 60-year-old man can expect to reach 82; a 60-year-old woman can expect to live to 85.
13: Ignoring Inflation
It’s crucial to factor in inflation when setting retirement savings goals. Otherwise, what sounds like a livable lump sum of change now won’t be the same in 10, 20, and 30 years from now.
Although inflation is unpredictable, you can’t ignore the possibility—we all know that from recent years. So, if you’ve made the mistake of not factoring inflation in to your retirement goals, start now.
14: Having Debt
Sometimes, it is impossible to be completely debt-free. But having less debt will further your retirement funds, not to mention offer lower stress during your golden years.
Also, carrying debt into retirement keeps you from travel and other fun things. Retirement should be fun, not stressful.
15: Not Hiring a Professional
Retirement is a serious subject, and it helps to hire an expert. Financial advisors can help you set a course to meet your retirement goals. Many even offer a free initial consultation.
One of the best parts about having a retirement advisor guiding you with your savings? If your goals change, they can help you adjust your plan. Trust us—the comfort of dealing with someone whose career is keeping up with finances eases financial anxiety.
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