We all love to reminisce about the good ol’ days. When we do, it’s easy to forget all the annoying details or frustrations we dealt with. Instead, we only remember the beautiful pictures of the past. When it comes to retirement, though, the good ol’ days may be exactly as good as people say they are. You see, it’s used to be much more common for folks to work for the same employer their entire careers. When they retired, there was often a generous pension waiting for them. It would easily last them through retirement. Yes, life was simpler back then. You worked hard and your company took care of you. There was much less of a focus on personal retirement savings. There was no need to worry about the 4% rule. Nowadays, though, there are numerous retirement mistakes you can can make long before you clock out forever.
More and more, we are now left to fend for ourselves when it comes to retirement savings. A generous company pension is slowly becoming an endangered species. Aside from Social Security, you’ll need to figure out how to save for our own retirement. If you still work somewhere with a strong pension plan, consider yourself lucky. For the rest of us, it’s imperative that we don’t falsely develop any wrong money mindsets. These false notions and financial missteps can be extremely detrimental to our nest eggs. Here are nine such mistakes you might be making. Are you falling victim to these costly money mindsets?
Helping Everyone Else First
Good for you for being selfless. However, being too generous can be a bad thing. Don’t endlessly help others unless you are well on track to retire comfortably yourself. One common example is balancing out how to fund your retirement versus paying for your children’s college education. Far too many parents forego their own saving in order to pay tuition. This might be a mistake.
Plenty of banks will give student loans to an 18-year-old with decades of earning years ahead of them. However, you can’t get a loan to fund your retirement. We know that you want to do the selfless thing as a loving parent. But you should only be helping others financially if you’re own retirement funds are already on-track. Sure, help out if you can. It’s the noble thing to do as a parent. Just don’t jeopardize your retirement to do so.
Banking on Relocating
One way that many retirees have been able to cut down on their expenses is to relocate. Whether it’s simply moving to a cheaper city or hightailing it to a foreign country, you hear these stories all the time. Your nest egg will go a lot farther if you’re not paying big city rental prices anymore. Or if you move to a place where an American dollar goes a lot further than back at home. It’s easy to arrange a new budget around everything being 50% cheaper than you’re used to.
However, you should really think hard about your relocation plans. The financial gains are attractive, sure. But do you really want to be so far away from your family? You’ll be giving up lots of quality time with your children or grandchildren. You’ll probably miss your old friends more than you think. In the end, a lot of people who have relocated for retirement change their minds and move back. All of a sudden, their budget is unexpectedly being blown every month. Relocation can be a smart retirement move, but it’s not a decision you should take lightly.
Not Caring About Inflation
I bought a bowl of noodle soup last week for $15. It was $12 last year. It was only $8 five years ago. I remember thinking $10 for lunch was a little expensive not too long ago. Now, even McDonalds is charging $7 or $8 for a combo these days, once you factor in taxes. I just spent $25.86 yesterday at KFC for the four of us — and we didn’t even order any drinks. Yikes! The price of everything keeps rising. That’s just the reality of inflation. If you don’t factor those rising costs into your retirement plan, you’re in for a nasty surprise. After all, you might stop working at age 65 but live until you’re 90. A lot things can change, financially, in those 25 years. Be prepared.
Thinking You Can Just Work Longer
You might think that as long as you have income, you don’t have to worry about retirement. Not only do you get to save more for later, but you’ll end up needing less in your retirement fund since you’re shortening the amount of time you plan to be out of the workforce. This notion is becoming more and more common. According to an AARP survey, more than half of the respondents expected to retire past the traditional retirement age of 65.
Sometimes, though, life has other plans. You may experience health issues. Or your company may unexpectedly downsize your position. And now we’re all worried about the ongoing pandemic. Maybe you’re not even comfortable going back to the office, and change your mind about sticking it out for a few more years. You should as long as you want. However, the sooner you can start working because you want to and not because you need to, the better off you’ll be.
Raiding the Retirement Account
There will always be reasons to make withdrawals. Medical emergencies. Natural disasters. Unexpected life events. If you’re not careful, it’s easy to convince yourself that almost anything is urgent enough to raid your retirement savings. But remember that these are called retirement accounts for a reason. Emergencies should be handled by an emergency fund. Leave those retirement accounts alone to work their compounding magic. You’ll come out much further ahead in the end.
Planning to Just Spend Less in Retirement
Once you stop going to the office daily, you won’t need to spend money on lunches. You don’t have to show up for meetings after you retire, so you can skip those shopping trips for work clothes. You also won’t need to commute every day, so gas costs go way down. It’s true, there are many expenses you won’t have once your retire. Furthermore, statistics have shown that the average retiree spend less in retirement as they age. But averages are only averages. Maybe you just aren’t average at all.
You might actually spend less in retirement, but that’s not guaranteed. Maybe your hopes for retirement include plenty of travelling. Or exotic golf vacations. Or finally buying that dream sports car. Hope for the best and plan for the worst, as they say. Don’t end up making this retirement mistake!
Putting Off Retirement Savings Altogether
Tomorrow never comes because tomorrow will always be one day away. If you put off saving now, then you’ll always be waiting to get in. What you lose isn’t just the dollar you haven’t saved. You’ll also lose out on decades of potential growth that dollar could have earned.
When I was talking about retirement in my 20s, my friends told me I was being crazy. After all, it was an entire lifetime away. Why worry about it now? However, now I’m in my 40s. I still have friends who haven’t saved a dime for their golden years. Meanwhile, I’ve benefited from two decades of compound interest on my retirement savings already. How long are you planning to wait? The best time to start saving for your retirement was five years ago. The second-best time is today.
Only Looking at the Monthly Payment When Refinancing
I’m putting this one in here because it makes such a huge difference. It’s not a typical retirement consideration, but just hear me out. I listen to radio commercials every day, promising to save people hundreds of dollars a month by refinancing their mortgage. However, they fail to mention that part of the reason why homeowners can save so much is because a refinance extends the loan back out to 30 years. If I divide the same amount by a higher number, of course each payment is lower! Don’t blindly look at the monthly payment when you refinance a loan. Sit down and do the math.
Refinancing your mortgage when you’re in your 50s and 60s can help your monthly cash flow, sure. But do you really plan to pay a mortgage into your 90s? If you happen to not live that long, there will be much less equity in the house to leave to your heirs. For most people, your house is the largest single asset you’ll ever own. Take extra care to not make any catastrophic mistakes, just to save a few bucks a month.
Not Having a Plan if One Spouse Passes Away
I know it’s not something that anyone wants to think about. But death is a fact of life, and it’s a lot easier to grieve when you’re not also stressed about the financial impact of one spouse passing away before the other. In fact, I seldom see people talk about the financial consequences of losing a spouse. However, losing your significant other has serious tax, estate, and income consequences. At the very least, you immediately lose some of your Social Security income. Don’t ignore this inevitably. Prepare your retirement accounts, life insurance, last will and testament, and other assets accordingly. Let’s face it, it’s highly likely that one spouse will pass before the other. That means the surviving spouse will still have to make ends meet somehow.
The Bottom Line on Retirement Mistakes
This article is a huge downer, I know. It’s one of those “you have to be a responsible adult” lectures that we’re sure you’ve already had your fair share of over the years. The good news is that not every bad scenario we talked about is going to come to pass. The better news is that as long as you keep saving — even slowly — you can prepare for any potential disasters. You’ll be ready to weather whatever storm comes your way. Keep your chin up and focus on the long term. You’ll still sip that piña colada on the beach one day!