Aging Options

Retirement savings mistakes people make

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We talk a lot about saving for retirement on this site but what we don’t talk about a lot are some of the mistakes people make in saving for retirement.

Now you wouldn’t think that saving money can be done a right or wrong way but it’s one thing to have the economy tank and cause your savings to be stretched too thin and quite another to have missed a step in your savings that could have netted you even better savings.  Here’s the list from Time on the five biggest retirement saving mistakes.

  1. Over-relying on rules of thumb.  One rule of thumb I’ve written about in the past is the 4 percent rule.  That story is here.  But, there are all sorts of financial rules we take as solid strategies rather than recognizing that at best they are about how doing something is better than doing nothing.  You’re going to need a customized plan and unless you work in the financial industry or you’ve made financial planning your hobby that means hiring someone to get you going in the right direction and helping to keep your forward momentum.
  2. Going too conservative at retirement.  This is one of those rules of thumb that we take as gospel and to be fair at one time it probably made sense to move your portfolio towards bonds and otherwise eliminate or greatly reduce your risk.  The problem is that retirement used to last less than a decade but today’s retirees can expect to need their savings to last 20 or 30 years.  That means you’ll need to see continued growth and for that you’ll need to take on more risk than was historical recommended.
  3. Taking Social Security too early.  You only have to live until your mid-80s before you break even with what you would have made with taking benefits early.  If you live longer than you planned, the impact of an early claiming could be financially catastrophic especially if you are a woman or are married to one.
  4. Failing to use a retirement calculator.  There’s no need to guess how much money you’ll need to save to thrive during retirement when there are plenty of retirement calculators available for free.
  5. Cashing out retirement assets early.  Americans change jobs frequently, some estimates suggest as many as seven career changes in a work life.  Changes can be good but not if you use a job change as an excuse to cash out your 401(k).  One study found that one in four Americans tap into their retirement accounts to pay for basic pre-retirement needs.  And while those aren’t all from people changing jobs, that leakage involves fees, penalties and taxes that strip much of your earnings away.

I had a boss once who used to say, “Take care of your money and your money will take care of you.”  Those are good words to save by.

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