The thought of retiring can be overwhelming for people who are unprepared. The biggest problem facing people nearing their retirement age is how to balance the life they are living now with the life they want to live when they retire.
Some mistakes are ubiquitous and avoidable, yet they have prevented many people from retiring on time. With thorough planning, you can steer clear of these mistakes and get your retirement plan back on track.
Here are top five mistakes you should watch out for and avoid at all costs:
Relying too much on one source of income
Relying on one source of income will impact your retirement significantly. Some people completely rely on Social Security, 401(k) or work pension. Given that social security is running out of money and lots of pension plans are drying up and in a huge deficit, the burden to successfully fund your retirement hinges on the decision you make right now.
Not saving enough
According to a survey conducted by Bankrate.com, one in five respondents — about 18 percent are not saving at all. Another 28 percent are saving less than 5 percent of their income.
To meet the increasing retirement expenditures, you have to save 10 to 12 percent of your income — this is only true for Americans age 20 to 25. If you wait until you’re 40, you’ll need to save up to 23 percent of your income to live comfortably in retirement. And if you’re 50 and haven’t saved anything, to retire in comfort requires that you set aside almost half of your income — that can be very hard to accomplish.
The cost of health care
Most people don’t know what health care might cost them in retirement; this is often the most overlooked area. Planning and estimating the cost of health care will help you keep things in perspective. According to a study by Fidelity, a 65-year-old retired couple will spend on average $250,000 in health care cost in retirement. By not taking health care cost into consideration, you risk running out money in your golden years.
The assumption that Medicare will cover all health care cost is simply not true. The cost of Medicare is rising every year; you have to take that into account and plan accordingly.
Taking too much risk with your investment portfolio
You have to understand the difference between investing and gambling. It’s easy for greed to kick in when you see an investment delivering an above average return. You need to understand that above average return is not consistent for a prolonged period of time. You should tread carefully and avoid putting your retirement fund into an account that is exposed to too much market risk as you near retirement. Seek professional advice for greater investment diversification.
Not revisiting your plan often
Income and lifestyle changes should be taken into account because any significant change will impact how you save. It’s crucial that you revisit your retirement plan every few years to account for income growth or declines, market rise or fall and lifestyle changes such as your second child being born or you bought a new home. As rule of thumb, you should revisit your plan every 3 to 5 years to account for lifestyle changes. Making this adjustment will align your current lifestyle with your retirement goal.