Retirement Planning Mistakes You Might be Making, Part One

You already know that many American workers aren’t saving enough for retirement. According to recent studies, many Baby Boomers will be living off of a savings worth about $7,000 to $9,000 annually (in addition to Social Security). But aside from the obvious mistake of not saving enough money, many of you are making these other common retirement planning mistakes.

Planning to stay in your home. Paying off the mortgage and staying in your old home might seem like a good idea, but in some cases it will cost you too much money. Upkeep and maintenance on a large, older home can become too much of a burden as you grow older. In some cases, selling the home and paying cash for a smaller, low-maintenance garden home or condo is the better plan.

Forgetting to plan for the cost of downsizing. On the other side of the above issue, many people do plan to downsize to a more affordable home in retirement. But then they forget to plan for the cost of moving, closing costs, capital gains taxes (if any), and so on. Make sure you accurately estimate the cost of this major life decision.

Counting on income from a part-time job. Working in retirement can be a great idea for many reasons; it will keep you active, help you develop social connections, and of course boost your income. But it’s better not to count on the income, because you might not be able to work due to health issues. Plan for retirement as if you won’t be able to work. If you’re able to work, and still want to, then the income will be a bonus rather than a necessity.

Hoping for an inheritance. Perhaps your parents plan to leave you a sum of money, but in the meantime they incur significant medical expenses or some other disastrous financial event. You might not inherit as much as you had planned, so always plan for retirement as if your parents’ money does not exist.

Borrowing from your retirement fund. Let’s say you’re ahead of the curve, because you’ve saved a significant amount in your retirement fund. But then you need money to purchase a home, pay a child’s college tuition, or some other expense. Borrowing that cash from your retirement fund will be a mistake for several reasons. Not only will you lose compounding interest that would have accumulated on that money, potentially costing yourself thousands of dollars, you might also jeopardize yourself in other ways. Many retirement funds won’t allow you to make contributions until the loan is repaid, costing you even more time as you plan for retirement, and you might not be able to trade up to a more lucrative job if one becomes available. Many company-sponsored retirement plans require full repayment on any loans if you separate from your employer.

Unfortunately, these are just five of many potential retirement planning mistakes you might be making. Next week we’ll cover a few more common mistakes so that you can be on guard against them. In the meantime, give us a call if you need retirement planning advice, or have any other financial questions.