Retirement planning is hard. It’s complicated. It’s no surprise that many of us make mistakes that can turn retirement dreams into last-minute panic.
As retirement approaches, there are tons of things to think about, like when to take Social Security, how much to withdraw from your 401(k), creating a spending plan you can stick to and investing your retirement savings. And like the butterfly effect, small decisions made today can have huge, life-changing consequences later on.
That’s why it makes no sense to go it alone.
A Northwestern Mutual study found that 71% of U.S. adults agree that their financial planning needs improvement. However, only 29% of Americans work with a financial advisor.
The value of working with a financial advisor varies from person to person, but according to an independent study, people who work with a financial advisor feel more comfortable with their finances and could end up with about 15 percent more money to spend on retirement.
But who can you trust to advise you? In the past, you had to turn to a stranger and take your chances. But that was back then.
Today, there are free online services that allow you to discover your ideal financial advisor in a flash. You fill out a short questionnaire, and then you’re matched with up to three local fiduciary financial advisors, each legally bound to work in your best interests. The process only takes a few minutes, and most times, we can connect instantly you with an expert for a free retirement consultation.
It’s definitely something you should do. In the meantime, here are five of the biggest retirement mistakes - and how to avoid them.
1. Not planning is planning to fail
A happy retirement is a stress-free retirement. And how do you eliminate stress? It’s simple: by having a plan.
When you want to go somewhere you’ve never been before, do you get in your car, drive aimlessly, and hope to get there one day? No. First, you decide where you want to go. Then you use a map to plot the shortest route to get there.
A financial plan is a map that plots the shortest path to your retirement goals. Deciding what you’re going to do, where you’re going to do it, how much it’s going to cost, and where the money is going to come from: these are all parts of your plan. But what if your plans change as you approach retirement? That’s okay. It’s your plan; you can change it.
Does making a plan seem complicated? It is. The investments you choose, income taxes and your target retirement dates are just a few of the many variables you’ll need to consider. That’s why, if there’s ever a time in your life when you need professional advice, this is it. By hiring an experienced and expert guide as a qualified financial planner, you won’t get lost and you’ll arrive at your destination.
2. Put off until tomorrow what you should have started yesterday
According to a recent Bankrate.com survey, the biggest financial regret is not saving enough for retirement. And why aren’t Americans saving enough? Because they procrastinate, telling themselves, “I’ll wait until I have more money” or “I’ll start when I’m closer to retirement.”
The fact is, the longer you wait, the harder it will be. It’s better to start small but early than to start big but late.
If you’ve fallen behind in your retirement savings, a financial advisor can help you catch up and determine how much you’ll need to invest to reach your goals. Besides investing for your future, a financial advisor can help you budget and pay down debt.
And while there are obviously no guarantees, if an advisor can increase your returns, it can make a big difference. Consider this: if you save $500 a month for 40 years and earn an average annual return of 5%, you’ll end up with almost $725,000. If you double that return to 10%, you’ll retire with nearly $2.7 million. That’s a life-changing difference.
Again, there’s no guarantee that a professional will do better than you could do yourself. But the fact is, over time, small things can make a vast difference in your life.
3. Retiring too soon or not soon enough
If you’re thinking about retiring soon, you may dream of quitting your job and traveling the world. However, before you get to that point, there are several reasons you should consider it. First, you may live longer than expected, encounter unexpected health problems or face financial challenges that require you to cut back.
That’s not to say you shouldn’t retire early, but if that’s what you’re considering, run several scenarios to ensure your savings will cover your expenses during retirement and provide you with a lifetime income.
The same is true if you don’t retire early enough. If you’re not sure your savings will be enough, you’ll worry and, as a result, you may work longer than you need to. It’s better to know what you have and what you’ll need. Replace doubt with certainty and work only as long as you want.
If you are nearing retirement, meet with a financial planner to determine the optimal time to retire based on your personal situation.
4. Hiring the wrong financial advisor
Whether it’s building wealth or securing a comfortable retirement, hiring a financial advisor is an important life decision. Unfortunately, not all advisors are created equal. Hire the wrong advisor and you could end up worse off than when you started.
When it’s time to find someone to help you, always meet with several planners. Talk to them, ask them the same list of questions, and evaluate their qualifications and advice before deciding. Ask how they are paid and how long they have been in the business. Take your time. And always deal with a fiduciary: a planner who is legally bound to put your interests ahead of theirs.
These days, finding a financial advisor you can trust doesn’t have to be frustrating or difficult. Start your search with this free financial advisor matching tool, which connects you with up to three qualified financial advisors in less than five minutes. Each advisor is vetted and is a fiduciary.
If you want to be connected with local advisors who will help you achieve your financial goals, start now.
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5. Taking too much risk, or not enough
Risk is a funny thing. If you take too much, you risk losing your savings. But if you take too little, you risk losing your purchasing power to inflation.
The money you retire with is money that cannot be replaced. That’s why we turn to low-risk, low-return investments as we age. But as inflation erodes the value of money, this safe nest egg becomes less valuable in terms of what it can buy. The bottom line? Often, taking no risk has its own risks.
Investing, both before and after retirement, is a balancing act: it’s about leveraging investments that provide you with a steady income, protection against inflation and manageable risk. Your strategy will require safe, guaranteed income investments, as well as some exposure to equities and other inflation-protected investments.
You can learn how to do this yourself, or you can hire an investment professional to advise and guidance before and after retirement.
