You’re still young, so it seems weird to worry about retirement mistakes, right?
Unfortunately, the things you do now can lead to problems down the road. If you don’t plan right, you won’t have enough money to retire with.
So, what are some of the things to avoid right now? Here’s what you need to know about getting it right for retirement, no matter your age:
1. Failure to Save Enough
The first retirement mistake is the failure to save enough. You should start saving for retirement as soon as possible and then increase your contributions as your finances improve. The truth is that $200 a month probably isn’t going to be enough to retire on.
However, it’s also true that you don’t have to keep at that level indefinitely. Use tools like the Wealth Calculator to adjust your retirement account contributions to get closer to your goals.
The earlier you start, the less you have to save each month. So, put that compound interest to work for you ASAP. Start investing. Then increase the amount you invest for retirement. Make it a long-term habit, and you’ll be more likely to reach your goals.
2. Forgetting About Inflation
One of the retirement mistakes that’s easy to make is forgetting about inflation. Inflation is the silent killer of your nest egg. It slowly eats away at your spending power.
The fact of the matter is that your money isn’t going to be worth more in the future. If you consider that inflation averages about 2% to 3% a year, that can add up to something substantial over time.
All you have to do is compare what things cost in the year of your birth to what they cost now to get an idea of inflation could wreck your future finances. In order to beat inflation, it’s important that you avoid mistake #1 and put extra money into your retirement whenever you can.
3. Underestimating Your Life Expectancy
When planning for retirement, many of us think in terms of 20 years or so. Unfortunately (or maybe fortunately), this isn’t the case. In fact, there’s a good chance that you’ll end up living at least 30 years or more in retirement.
Assume that your money is going to need to last you. As a result, you need to use a calculation that helps you figure out how to make your nest egg last indefinitely. This means thinking about growing your nest egg to the point where you are likely to outlive your money.
Many people use the 4% rule as a jumping-off point. The idea is that if you figure your portfolio can return 7% on average each year, but you subtract 3% for inflation, you should be able to keep using your money indefinitely. There are flaws in the 4% rule, but it can be helpful when getting an idea of what you need.
Consider: if you figure you need $60,000 a year to live on during retirement, that means that your withdrawals should amount to no more than 4% of your portfolio size. That means you need $1.5 million in your nest egg — assuming that you’re still able to live on $60,000 a year after inflation takes its toll.
4. Not Planning for Healthcare Costs
Another of the big retirement mistakes is not planning for healthcare costs. As you approach the end of your life, your health costs will go up. And this includes the potential to need long-term care.
Think about how much you might spend on these costs — and then double it. The reality is that healthcare costs are always going up. You need to plan for that.
One tool I like to use as I plan my retirement is the Health Savings Account. If you qualify, this can be a great way to save for healthcare costs in retirement. Yes, you can use the money now. But I prefer not to. Instead, I’m letting it grow as an extra retirement account to help pay for health costs.
5. Failure to Get Help Planning Your Retirement
At some point, you need help planning your retirement. It’s important to make sure you have help deciding when to withdraw your money and which order to use. Getting help with a roadmap can mean success later. Don’t be afraid to sit down and make a plan for retirement. It will help you in the long run — especially if you have the help of a professional as you navigate risk, returns, taxes, and other items.
Don’t let these retirement mistakes derail your future. Work now to head them off and your future self will thank you.