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20 Retirement Mistakes You’re Making Now That Will Cost You Millions

retirement guide

Have you put much thought into your retirement? Unfortunately, most of us don’t. And, that could have serious repercussions if you want to actually enjoy your retirement years. Retirement mistakes are rapid.

The thing is, retirement involves more than just opening a savings account and forgetting all about it. You’re also going to have to make some sacrifices, keep monitoring it, and avoid costly mistakes. If you don’t do any of those, that could lose you millions of dollars.

To prevent that from happening, there are a few retirement mistakes that will help.

Retirement Mistakes You’re Making Now That Will Cost You Millions

1. Not Having a Retirement Plan

According to a FinanceBuzz survey released in January 2020, a “whopping 35% of respondents said that they have no retirement savings at all.” Moreover, data from Northwestern Mutual’s 2019 Planning & Progress Study found that 56% of Americans don’t know how much they’ll need to retire.

Yikes. Both of those findings show that a lot of people are just asking for trouble down the road.

Whether you’re nervous about retirement or aren’t in the best shape financially, you need to plan for retirement as of yesterday. After all, the sooner you come up with a plan, the more quickly you’ll be able to resolve this problem. Not to mention you will make far less retirement mistakes. And, your future self will thank you since you’ll be able to actually enjoy your golden years.

If you haven’t come up with a plan yet, answer the following questions:

  • What does your lifestyle look like?
  • Where will you live?
  • How much will you spend on needs each month?
  • Do you have enough set aside for healthcare costs?
  • How much do you want left to enjoy leisure activities?

After answering the questions above you should have a little better idea of what you want your retirement to look like. If you’re short, then you should create a budget in order to reduce your expenses, find another income stream, or diversify your portfolio.

2. Taking Social Security Too Early

For those who aren’t aware, you can begin receiving your Social Security retirement benefit as early as age 62. Or, you can wait until as late as age 70. But, for many, they’re tempted to collect this ASAP so that they can actually use it before it’s too late.

Here’s the thing though, you’re probably better off waiting.

“According to the Social Security Administration (SSA), the average woman reaching the age of 65 today will live until 86.5. The average man who is 65 today can expect to live until 84,” writes Donna Freedman for MoneyTalkNews.

“One way to help ensure you don’t run out of money before then is to postpone claiming your Social Security retirement benefits,” adds Freedman.

While this may not be an option for everyone, claiming sooner than later could be one of the retirement mistakes because of the following:

  • Claiming early reduces your benefit. In fact, for “every year you hold off past full retirement age, your benefit will jump by as much as 8%.”
  • You might outlive your retirement income.
  • Working longer can increase your benefit, as well as survivor benefits for your spouse.
  • “A lower monthly benefit means that each cost-of-living adjustment (COLA), inflation-based increases to monthly benefit amounts, will result in less money than it would have if you had postponed claiming Social Security,” Freedman states.
  • Taking Social Security too early means that you might get hit with a tax torpedo since this is considered a “combined income.” As such, 85% of your Social Security benefit could be taxed.
  • If you enjoy and are able to keep working, even part-time, could cover your expenses until you reach ago 70 “at which point your Social Security benefit would be maximized,” explains Freeman.

3. Choosing the Wrong Retirement Plan

There was a time when people could rely on their employer’s pension plan and Social Security to fund their retirement. But, since those days are behind us, it’s up to you to determine the best retirement plan for you.

Ideally, a retirement plan should not only build your nest egg by earning serious interest on your savings and offering tax benefits. Usually, that means optimizing your 401(k) or other workplace retirement plan by analyzing and rebalancing your investments and using robo-advisors.

If you don’t have a retirement plan at work, or you’ve maxed out your 401(k), look into an IRA. And, for the self-employed, consider the SEP-IRA, Solo 401(k), SIMPLE IRA, and profit-sharing. You can also look into a high-yield money market account where you can earn nearly 2.00% interest while also having unrestricted access to your savings.

4. Failing to Take Advantage of Your Employer’s Match

Nearly 20% of Americans aren’t contributing enough to their employee-sponsored 401(k) plans to earn the company match. In other words, they’re missing out on “free money.”

“That’s your company literally saying: ‘Hey, here’s some free money, do you want to take it?’” financial expert Ramit Sethi tells CNBC Make It. “If you don’t take that, you’re making a huge mistake.”

“While it’s fair to think about your employer match as ‘free money,’ it’s better to view it as part of your total compensation package,” explains money reporter Anna Hecht. “If you contribute enough to earn the full match, you’ll get all of the money your employer owes you. That can be a significant amount: The average employer 401(k) match reached 4.7% this year, according to retirement plan provider Fidelity.”

“A buy-one-get-one-free deal is how I think of it,” adds Monica Sipes, a certified financial planner and senior wealth advisor at Exencial Wealth Advisors “The match is something that’s considered in your overall compensation, so by not taking advantage of it you’re not getting a full freight of what your employer was expecting to pay you.”

“If you earn $55,000 a year plus a 4% 401(k) match and contribute at least $2,200 to your account, your employer will also contribute $2,200,” writes Hect. “If you only put in $1,000, your employer will as well, which means you’re missing out on another $1,200 that could be growing in the market.”

5. Tapping Into Your Retirement Fund

“One of the most costly retirement mistakes you can make is to withdraw money from your retirement fund before you retire,” notes Katie Brockman for The Motley Fool. “On the surface, that may not seem like such a disastrous move, but over time, it could potentially cost you tens or even hundreds of thousands of dollars.”

Take what happened during the COVID-19 pandemic. Because of unexpected expenses, “the average retirement account withdrawal was around $5,500” in April 2020.

So, let’s say that you’re 40 years old with $102,000 in your retirement account balance. It’s also earning an 8% annual rate of return on your investments and you aren’t making further contributions. “That single $5,500 withdrawal can amount to around $55,400 in lost potential savings after 30 years,” clarifies Brockman.

The best way to avoid this? Build an emergency fund to handle the unexpected. Preferably, you should have to cover three to six months’ worth of living expenses.

Also, the same goes for your pension. A financial advisor may sway you into cashing it out. But, that’s because they’ll get a juicy commission if you do. Unless you’re in dire straits, avoid cashing out your pension early.

6. Forgetting About Taxes

“If you’ve been saving for a while, you might get excited when you peek at your balance,” writes Andrea Coombes over at NerdWallet. “Don’t forget that a chunk of that money — assuming it’s in a 401(k), traditional IRA, or similar tax-deferred account — will go to taxes.”

While taxes are unavoidable, taxes, “you can diversify with after-tax accounts,” Coombes adds. “For example, with a Roth IRA, you put money in after you’ve paid taxes. Then, your money, including investment earnings, comes out tax-free in retirement.”

You could also put your savings in a taxable investment account. “You may owe taxes annually on capital gains or dividends, but those rates often are lower than regular income tax rates,” adds Coombes.

“Owning a Roth or taxable account in addition to tax-deferred accounts helps you manage your taxes in retirement. If distributions from a 401(k) or traditional IRA will push you into a higher tax bracket, you can use money from a Roth to keep your tax rate lower.”

7. Spending Instead of Rolling Over

Have you switched jobs? If so, then “you have the option of rolling over your employer-sponsored retirement account into another account,” says Serenity Gibbons in a previous Due article. You can do this “either with your new employer or an independent account that you’ve set up on your own – or cashing out,” adds Serenity.

“According to retirement expert Jack Vanderhei, 70 percent of workers who switch jobs in their 20s cash out instead of rolling over, while 55 percent of workers in their 30s make the same mistake.”

“Not only does cashing out have stiff penalties (as discussed in the previous point), but it also sets you back and requires you to start over with a retirement balance of zero,” she writes. “Rolling over can sometimes be a headache, but buckle down and do it. It’s a much wiser way to manage your money.”

8. Putting All Your Eggs into One Basket

When it comes to investing, the best piece of advice that you may come across is to diversify your portfolio. It ensures that you aren’t buying too much into just one stock. It also prevents you from investing either too aggressively or conservatively.

In short, a diversified portfolio reduces risk, while also providing long-term value. At the minimum, a diversified portfolio should be spread across multiple sectors including stocks, bonds, mutual or index funds, CDs, real estate, and even cash.

9. Not Being Aware of Fund Fees

Speaking of investing, while you shouldn’t avoid the market, you should be aware of the hidden fees involved. In fact, one study has found “that investors lose to fees can amount to $400,000 over a lifetime.” These can include advisor fees, which can be as much as 3%, and expense ratios that can vary from 0.5 % to 0.08 percent.

10. Ignoring the Impact of Inflation

According to Statista, the inflation rate is projected to range from 2.73% to 2.23% over the next few years. At first, that may not seem like a big deal. But, it still impacts just how far the dollar will go. So, if you have some retirement savings in a fixed savings accounts then it’s going to lost value over time.

You can beat inflation with a diversified portfolio, specifically a combo of mutual funds. These will have some aggressive investment to stay ahead of inflation, while also containing more consistent and stable options.

11. Putting Your Kids First

Obviously, you have to provide for your children. And, you also want the best for them in the future. No wonder that 52% of parents stated in one survey “that it was more important to save for their children’s college than it was for their own personal retirements.”

But, you also can’t jeopardize your retirement for their education. Remember, you can’t take out a loan for your retirement. Your children, however, could use scholarships, grants, student loans, or work-study jobs to help pay for college.

12. Sacrificing Your Livelihood to Care For Aging Parents

According to the Caregiving Action Network, “more than 65 million people, 29% of the U.S. population, provide care for a chronically ill, disabled, or aged family member or friend during any given year and spend an average of 20 hours per week providing care for their loved one.”

While many find this act of love to be rewarding, it can also put a dent in your retirement plans. Try to find ways to make up for these financial losses, such as passive or work-from-home opportunities.

What if you’re helping your parents with their own retirement plans? Just like with children, don’t derail your own retirement if you can’t assist them financially.

13. Not Thinking About Healthcare

Many of us severely underestimate how much we’ll need for future healthcare expenses. In fact, according to the Fidelity Retiree Health Care Cost Estimate, “an average retired couple age 65 in 2020 may need approximately $295,000 saved (after tax) to cover health care expenses in retirement.”

Moreover, long-term care could have a total cost of $246,384. How so? Well, a semi-private room in a nursing home will set you back roughly $6,844 per month. That comes out to $82,128 per year. So, if required for three years, that’s how we come up with this figure.

If you haven’t done so yet, estimate your medical expenses in advance and figure that into your retirement plan. You may also want to take advantage of a health savings account (HSA).

14. Carrying Over Debt

For most of us, transitioning into retirement means living on a fixed-income. So, if you’re still paying off debt, such as credit cards, auto, and student loans, that could cause you to burn through your retirement savings. In fact, LendingTree found “that older adults born between 1949 and 1954 (ages 66 to 71) carried an average of $22,951 in non-mortgage debt in the second quarter of 2020.”

debt management
Fast, Easy Money Hacks to Get Out of Debt Fast

Find ways to chip away at this debt, like picking-up an additional income stream or consolidating your debt, so that you don’t have to sweat this later on.

15. Falling for Too-Good-to-Be-True Offers

“Hard work, careful planning, and decades’ worth of wealth-building are the foundations of financial security in retirement,” writes Bob Niedt for Kiplinger. “There are no short cuts. Yet, Americans lose hundreds of millions of dollars a year to get-rich-quick and other scams, according to the FTC, as elder fraud runs rampant,” he adds. “Of the more than 3 million complaints received in 2016, 37% were filed by people ages 60 and over. Fraud victims reported paying $744 million to scammers.”

“States’ Attorney General offices and the FTC offer tips for spotting too-good-to-be-true offers,” Niedt states. “Tell-tale signs include guarantees of spectacular profits in a short time frame without risk; requests to wire money or pay a fee before you can receive a prize; or unnecessary demands to provide bank account and credit card numbers, Social Security numbers or other sensitive financial information.”

If you smell something fishy, the “FTC advises running the company or product name, along with ‘review’ ‘complaint’ or ‘scam,’ through Google or another search engine.” Also, you should “check with your local consumer protection office or your state attorney general to see if it has fielded any complaints.” If so add your complaint to the list, as well as filing a complaint with the FTC.

16. Not Downsizing or Refinancing

Even if you’ve paid off your mortgage, housing is still a major expense –-Zillow states that the typical home value of homes in the United States is $262,604. Mainly this is because of recurring expenses like property taxes, utilities, maintenance, insurance policies, and possibly homeowner’s association fees.

Explore downsizing your home to something smaller to reduce these expenses — even if it’s still in your neighborhood. Just make that you don’t overestimate what your current home is worth, underestimate the cost of a new home, or neglect closing costs and tax implications.

If you are still paying off your mortgage, then it’s probably time to consider refinancing in order to secure a lower interest rate.

17. Putting Your Money Into Variable Annuities

There are advantages to variable annuities, such as receiving a regular income for the rest of your life. However, there are drawbacks as well. For starters, they’re vulnerable to market fluctuations. And, they can cost 50% to 100% more in fees and surrender charges.

transfer an annuity

Knowing this, you may want to avoid these if you can cover all of your expenses in retirement. Or, you could look into a fixed annuity since it provides more security. This is one of the biggest retirement mistakes we see retirees making.

18. Creating an Unrealistic Retirement Budget

Sit down and create a retirement budget that addresses the following:

  • What kind of lifestyle do you want to live?
  • Where do you want to live?
  • Do you plan on traveling?
  • What are your business goals?
  • Are you expected to financially help other family members?

If your budget doesn’t allow for you to stay in your current home or travel abroad, then you’re going to have to make adjustments and sacrifices to change that.

19. Giving Up Because You Started Too Late

Ideally, you should begin saving for your retirement in your 20’s. But, don’t throw in the towel if you didn’t. After all, it’s never too late to catch-up.

For example, if you’re over the age of 50, the IRS allows you to make an additional $6,500 annually to a 401(k) or $1,000 to an IRA. You should also downsize your home sooner than later or brainstorm ideas to bring in more money through side gigs or hustles.

20. Not Working With a Financial Advisor

Finally, make sure that you have a financial advisor. They can make suggestions on how to create a customized retirement plan, as well as help you steer clear of costly mistakes. But, just make sure to meet with them at least once a year to track and adjust your retirement savings.

About Due’s Editorial Process

We uphold a strict editorial policy that focuses on factual accuracy, relevance, and impartiality. Our content, created by leading finance and industry experts, is reviewed by a team of seasoned editors to ensure compliance with the highest standards in reporting and publishing.

CEO at Due
John Rampton is an entrepreneur and connector. When he was 23 years old, while attending the University of Utah, he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months, he had several surgeries, stem cell injections and learned how to walk again. During this time, he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine and Finance Expert by Time. He is the Founder and CEO of Due.

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