It’s never too early to start thinking about your golden years, especially the financial side of things. Planning for the distant future can be daunting for some, but if you avoid these five financial mistakes, it will help make sure you can do the things you envisioned yourself enjoying in your twilight years.
Mistake One: Retiring Too Early
One of the biggest mistakes is choosing your retirement date on your age alone. Oftentimes, people choose an age because it matches up with a well-known retirement milestone, such as retiring at 65. However, this isn’t always a good idea. It’s crucial to know what your income needs are, and if you are on track to meet them. Understanding how to optimize Social Security benefits is also critical when deciding on what age you wish to retire at. Therefore, there is a lot to consider surrounding this personal choice. For example, let’s say you decide to retire before 62, will you have enough money to draw from until your pension and/or Social Security payments kick in? Will you be able to hold off on claiming Social Security until the optimal age of 70? If the answer is no, then you might want to hold off on the retirement party.
Mistake Two: Not Having A Diverse Portfolio
The next blunder to avoid is investing all your money in stocks. If there is a downturn in the market while you’re depending on your investment accounts for income, you will be in serious financial trouble and you will run out of money before you know it. The name of the financial game is having a diverse portfolio.
It is also important to note that paying attention to inflation is important as well. Thinking about what your monthly expenses could look like years from now can help avoid issues in the far future. Choosing investments with rising inflation in mind can help manage your income and purchasing power down the line.
Mistake Three: Overspending
Another big mistake is overspending. ‘When you have extra free time and a wide-open schedule, it’s easy to overspend on holidays and expensive hobbies to keep yourself occupied’ says Vernon Bresnahan, a finance blogger at State of writing. You will still need to keep those budgeting skills sharp, so you can still take some holidays but also pay your bills and pay for other necessities, like food. If you make a budget and find that you have more money than you thought, you can always go back and make the necessary adjustments.
Mistake Four: Not Planning For Unexpected Medical Expenses
A fourth issue that many retirees face is underestimating medical expenses. Medicare doesn’t cover certain medical expenses, such as deductibles and co-payments. Nor does it cover the cost of care for dental, vision and hearing conditions; nor long-term nursing-home care. These things need to be planned for before you retire, either by personal savings that you have set aside or by other financial investments. While you can’t plan for every eventuality, having a financial cushion in place will help you and your loved ones out in case of a health crisis.
Mistake Five: Forgetting About A 401(k)
The last big mistake to avoid is losing track of an old 401(k) account. This happens usually because people get too busy. You are no longer giving this account any attention because it’s no longer being paid into. ‘This means that your account probably isn’t being updated to reflect your risk tolerance as you move closer to retirement’ explains Laura Sheridan, a business writer at Paper Fellows. It also might not include what is needed to help you reach your goals.
Planning your finances for retirement is necessary if you want to live happily in your golden years. Working with professional advisors and avoiding these five missteps will help you achieve a more stable and financially sound future.
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