Retirement confidence is at another low this year, with 28% of workers saying that they don’t feel confident they’ll have enough money for a comfortable retirement, according to a report by RCS.
Fortunately, with solid retirement planning, you can make sure that you’ll have enough money left to enjoy retirement. To do that, minimizing mistakes is the key to success. Here are five mistakes you’ll want to avoid:
#1: Waiting Too Long To Save
The longer your savings have to grow, the more they’ll do that. It’s like rolling a snowball down a hill. The farther you are from the bottom (retirement), the larger the snowball (savings) will be by the time it gets there. The longer you have money invested, the longer you can compound interest or earnings and let them grow. So you’ll want to take advantage of an IRA or 401(k) as soon as possible.
#2: Investing Too Conservatively
Conservative investments like bonds and CDs are great for protecting principal, but they’re not the best tools for growing your retirement wealth. So you’ll want to lean toward aggressive investments like stocks when you’re young.
Financial planners recommend subtracting your age from 100 (to be conservative) and investing that percentage of your savings in stocks. For example, if you’re 28, you’d invest 72 percent in stocks and gradually invest more conservatively as time goes on. For a quick guide on how to invest by age, take a look at NerdWallet’s infographic.
#3: Neglecting Healthcare Needs
The average 65-year-old couple retiring today would need $220,000 to $360,000 just to cover healthcare expenses. Yet the median retirement savings for those 10 years from retirement is just $12,000. That’s $24,000 for a couple nearing retirement to rely on, which isn’t a trend you want to follow.
If you have a high-deductible health plan (HDHP), one strategy is to pump as much money as possible into a health savings account (HSA), which allows tax-free contributions and withdrawals for healthcare expenses. Such an account can be rolled over from year to year.
If that’s not possible, earmark part of your retirement savings for healthcare. Only about one-third of current retirees do so – another group you don’t want to join.
Also, discuss healthcare expenses with a financial planner for expert advice on your specific situation.
#4: Retiring Too Early
Before deciding to retire, you should be able to calculate how much money you have saved and see whether there’s enough to cover you for the rest of your life, including paying for medical expenses.
You won’t be able to collect Social Security till at least age 62, and the chances you’ll be ready to retire at that time might be slim. Many millennials can expect to retire even later. A recent NerdWallet study found that most millennial graduates won’t be able to retire until age 73, because of their student loans.
Also, retiring too early means you’ll have less time to set aside money and need to stretch your savings for longer. That will reduce the amount you can spend each month, of course.
#5: Assuming You Can Work Forever
Many people assume they can keep their job or find another if they end up falling short on retirement savings. That’s not always realistic, though.
Just ask yourself how many 75-year-olds work at your company. Also, even if you’re in excellent shape today, your health could worsen.
And if your current employer downsizes when you’re 75, what are your chances of landing an adequate job elsewhere?
Waiting too long to save for retirement is the worst mistake you can make. Others to avoid include investing too conservatively and neglecting healthcare needs. Also think long and hard before you turn in that resignation letter.
Finally, never assume you can work forever, because various circumstances could effectively force you to retire without enough savings.