Eventually we all get to the age where we stop working for money. The name given for this time in your life is “retirement”. Of course, what you need in retirement won’t be the same from one person to the next because of all the different factors involved in your finances over time. However, there could be a lot of similar decisions we could have made leading up to our retirement.
How prepared do you think you are? Will you have enough money to be comfortable in your golden years? Do you have enough saved up for all the possible scenarios? You need to try to make the best choices you can before you get to retirement, and then continue to make good financial decisions in retirement.
To make good decisions you should probably know the bad ones. Here are some of the worst decisions you can make that you’ll regret you did when you’re retired.
1- Waiting too long to start saving for retirement
I have to start with this one because this is by far the worst thing you can do to yourself. The good news is that you can always start today. The bad news is that if you’re older it’s going to be a lot harder to catch up.
Lots of people don’t start to really think about saving for retirement until they’re in their 40s or 50s. By this time you’ve made it really hard on yourself to save enough for retirement without having to alter your lifestyle.
So how much of your paycheck do you need so save for retirement in order to have enough? That’s really going to be different for everyone depending on your lifestyle, but a common goal is to have saved $1 million by the time your reach the retirement age of 65. In order to do that you would need to save about $400 per month if you start at the age of 25. If you wait until the age of 35 to start you’ll double that and need to save at least $800 per month. If you really procrastinate and wait until you’re 55 then you’re going to have to save about $6,000 per month to reach your retirement goal.
Now, imagine you’ve never been saving and you’re used to having a certain amount of money to spend each month, then at 55 you notice you need to start saving for retirement. All of a sudden your monthly take home is $6,000 less because you need to start saving it for retirement. Instead you could have been saving $400 each month from a younger age and you would have never had to drastically change your lifestyle to save enough money for retirement.
2- Not investing in the stock market
You’ve figured out you need to start saving early, but where do you save all this money? As it turns out, not saving in the stock market because it seems like a “risky” place to put your money is one of the worst things you can do to yourself. The market is never always going up and up, that’s true, but with about 100 years of the stock market showing an average gain of about 10% returns it would be unwise to not invest some of your money into stocks.
To lower your risk you can buy into mutual funds instead of individual stocks. These funds give you a chance to have a piece of hundreds and even thousands of different stocks. This will in turn lower your overall risk while still keeping you in the market for some great gains.
In retirement you shouldn’t be taking everything out of stocks, but instead lowering your risk by moving some of it out of stocks and into something a little less risky. Rebalancing your portfolio according to your age and goals is one of the most important things you can do.
3- You have a plan to work longer than 65 to save for retirement so you’re ok
You might be thinking that you’re not waiting too long to start saving because you’re not going to retire at 60 or 65, but instead you’re going to keep working until 70 or 75. You might be thinking that you just don’t want to quit working because you enjoy doing it or maybe you realize that you need to keep working to afford your lifestyle.
Whatever the reason may be you need to realize that you can’t predict the future. Saying that you’ll keep working at that older age is all fine and good, but what happens if you lose your job? What happens if your health deteriorates and you’re not able to work? What if a loved one’s health gets bad where you need to be there to help them?
The fact is that whether you work or not is not always going to be up to you. As it turns out the majority of the people that say they’re going to work well into retirement actually end up retiring earlier than they had planned. The smart thing would be to plan for the worst case scenarios and start your savings early. You won’t have a problem if you have more than enough money saved, but if you’re short on cash retirement might not be so pleasant.
4- Taking your social security too early
You can start taking social security retirement benefits at age 62, but should you do it so early? Really you shouldn’t be touching any of it if you can because if you wait longer you should end up doing better. How? Because if you take out your benefits sooner you’ll be stuck at a lower payout for the rest of your life. However, if you wait until at least your “full retirement age” (which is at 66 now and climbing) then you would have earned a guaranteed 8% a year on the money that was waiting for you.
The 8% is about an average calculation of the benefit you get for waiting. In today’s world you’d have a pretty hard time finding somewhere else to put your money and get 8% with it also being safe. Even if you put your money in the stock market you’d only average around 10% these days, and that’s not guaranteed. When you’re at this older age and you have less time you need to be a bit more conservative with your investment choices and waiting to earn 8% on your money is a smart move. Take mine and a lot of other financial advisors advice and hold off on taking money from your social security.
5- Don’t fall for those “too good to be true” offers
There are no shortcuts to smart saving for retirement. If you need some sound advice then do some research and find yourself a good financial advisor or financial planner from a reputable establishment.
That advice doesn’t seem to stop the millions of people that get scammed out of their hard earned money every year. The old saying is always true, “if it’s too good to be true” then it most likely isn’t true. Don’t fall victim to get rich quick scams or “investments” that are sure to earn you enough money to use in retirement.
It’s sickening to me how bad these people can be. The worst part is that they go after retirees because they are usually the ones that have money to invest. Some of them are desperate for ways to save for their retirement and they unwisely fall for the trap.
Sometimes the person that is asking you to “invest” with them may actually have good intentions, however they don’t have the knowledge needed to make the best financial decision for you. If someone is soliciting your business then you should go and seek advice from someone else that you trust. Don’t make any financial decision in haste. Please be smart about it and ask someone that knows what they’re doing, and that you trust. If you don’t know anybody that works in finance then you need to do your research and find someone reputable and honest.
Some things to look out for that raise a red flag include the following. A request to wire money. Getting requests for your sensitive financial information like bank accounts, credit cards, social security numbers or other sensitive info. Anyone that is pressuring you to make a decision now without allowing you to wait and ask someone else you trust for advice. Anything that is advertising a “guaranteed” payout and profit should also raise a red flag.
Keep an eye on these and other things that may seem strange and you should do ok. If your instincts are telling you something is up then listen. If they’re not telling you anything then get yourself a second opinion from someone you trust (better yet always get a second opinion).