The 21 Big Retirement Mistakes that Most People Make and 21 Easy Fixes for a Better Future!
All of us can do better when it comes to personal finance. Here are some relatively easy fixes for 21 common retirement mistakes that are probably hurting your lifestyle now and will have a negative impact well into your future. Most of these problems are shared by at least 50% of all Americans. You are not alone.
Big Retirement Mistake #1: You Don’t Know What You Spend Money On Every Month
According to a recent study by U.S. Bank, only 41% of Americans say they use a budget. This can be a big retirement mistake — especially as you enter retirement.
When you are working, it is perhaps reasonable that you get by month to month and just do some mental accounting to make sure that bills are paid and accounts are not overdrawn.
However, to have a secure retirement, you need to know how much money you want to spend every month for the rest of your life. You can do an infinitely better job with a retirement budget if you know exactly what you actually spend money on.
Furthermore, it is almost guaranteed that you’ll find some good opportunities for cutting costs. Little things can really add up. For example, some estimates suggest that an average household wastes $1,350 to $2,275 on food each year. You may also find that you are paying too much in hidden fees, errors on your credit card bills, unused subscriptions and more…
Easy Fix: Take one hour this week and write down everything you have spent money on in the last month. Categorize your spending. And then, do this for a few months in a row. Use this knowledge to make a better retirement plan — including a detailed budget projected into the future. Additional ideas can be found in the article, “9 tips for Predicting Your Retirement Expenses.”
Big Retirement Mistake #2: You Own Too Much House
According to this NPR report, the size of the average American house has more than doubled since the 1950s. What’s worse however are the huge sacrifices we make to afford to live in these homes.
According to a report by the MacArthur Foundation, between 2011 and 2014, more than half of all Americans made at least one major sacrifice in order to cover their rent or mortgage payments. And, when they say sacrifice, they don’t mean skimping on eating out or a weekend away. To afford housing, 52% of households took on a second job, did not save for retirement, avoided medical care and/or ran up credit card debt.
Easy Fix: Retirement is the ideal time to consider relocating and downsizing to a more affordable home. As your biggest expense and most valuable asset, downsizing can have a massively positive effect on your retirement finances.
Want to see for yourself? Model downsizing in the NewRetirement Retirement Planner. After setting up your account, you can run different scenarios and immediately see how big and little changes impact your cash flow, net worth, estate and more.
Big Retirement Mistake #3: You Don’t Have an Investment Policy Statement
When it comes to your retirement investments, you will likely do best with a defined strategy. An Investment Policy Statement (IPS) is a document that defines your investment goals, strategies for achieving the goals, a framework for making changes to your plan and options for what to do if things don’t go as expected.
A good IPS should insure better financial outcomes, especially if all involved parties understand the document. An IPS is especially useful during stock market crashes and when you experience a major life change or transition.
As Ben Carlson of the blog, A Wealth of Common Sense, told Steve Chen, founder of NewRetirement in a podcast, “…it’s really about understanding yourself, your own emotions and to a higher extent your lesser self, and understanding what doesn’t work for you. And so, if you can filter out all the bad stuff and the stuff that really doesn’t fit within your investment plan hopefully whatever’s left over is just what will work for you and that you can kind of stick with and avoid all the other pitfalls that a lot of investors fall into.”
Easy Fix: Learn more about why an IPS is the secret weapon your retirement plan needs. Or, contact a NewRetirement Certified Financial Advisor to discuss an IPS.
Big Retirement Mistake #4: You Don’t Know What You Don’t Know About Personal Finance
Everyone — rich or poor and young or old — knows less about personal finance than they need to know.
A recent survey suggests that financial literacy is lower than even most people might expect. Fidelity asked more than 2000 people — half who were between the ages of 55 and 65 and not retired — questions in eight different retirement categories. The average that people got right was a mere 30 percent. Absolutely nobody got all the questions correct and the highest overall grade was 79 percent. Can you do better than average?
Easy Fix: Most articles would tell you to hire a financial advisor. However, many people don’t trust advisors — largely because it is impossible to assess whether you are getting good advice or not if you don’t have a good base of financial knowledge.
Perhaps a better way to at least start learning about personal finance is to take stock of your own situation.
The NewRetirement Planner makes it easy to get started. Enter some initial information about your finances, see where you stand and then start making changes and see what is possible — every time you update your data, you’ll get detailed feedback about how your finances change. You will learn through experience with the models. This is proven to be an excellent method for improving your knowledge of personal finance.
Big Retirement Mistake #5: You Aren’t Saving Enough
According to a 2018 Stanford Center For Longevity report, 30% of baby boomers haven’t saved anything for retirement, and those who have something saved, haven’t saved enough. The median balance for those born between 1948 and 1953 is $290,000. For those born between 1954 and 1959, they had saved around $209,000. That is probably only about half of what the average household needs. (Though, not everyone is average.)
An earlier study from the Insured Retirement Institute (IRI) found that a full 68% of Boomers who lack confidence in their retirement plans wish that they would have saved more and 67% wish that they had started saving earlier.
Easy Fix: Maybe you haven’t saved enough, but you likely still have some really good options for a secure retirement.
- Do you own your home? If so, have you factored how your home equity can subsidize your retirement finances either now or at some point in the future?
- Still feeling pretty good? Working a little longer — either part or full time can dramatically improve your long term finances.
- Can you delay the start of Social Security to boost your monthly benefit?
- Do you know what is important to you? If you focus on priorities, cutting expenses doesn’t have to feel like a burden.
Use the NewRetirement Planner to “try on” these strategies. This easy to use tool takes retirement planning way beyond savings and assets. This planner is designed to help everyone. Assess which options will give you a secure retirement.
Big Retirement Mistake #6: You Don’t Have a Plan for Turning Savings to Income
You have spent your whole life working and saving money — paying down your mortgage and putting some away for retirement.
Retirement IS the time to spend it. This is a HUGE perspective shift and something that people find problematic. Figuring out an efficient way to spend your money while making sure that you don’t run out can indeed be tricky.
Easy Fix: You need to develop retirement income strategies. Explore 18 ideas for lifetime wealth and peace of mind, including ways to guarantee your income.
Big Retirement Mistake #7: You Own Too Much Stuff
You probably have too much stuff. Don’t believe me? Consider this:
- According to professional organizer Regina Lark, the average U.S. household has 300,000 things.
- A widely reported study from the U.S. Department of Energy reports that of the houses with two-car garages, 25% don’t have room to park cars inside them and 32% only have room for one vehicle.
- The Wall Street Journal reports that Americans spend $1.2 trillion annually on nonessential goods—stuff they do not need.
Easy Fix: Retirement is an excellent time to simplify your life and take stock of what you really need and want. Maybe you could even sell some of your unused treasures with the proceeds going toward retirement savings or a fun experience!
And, don’t get your heart set on gifting your treasures to your children. Many recent articles indicates that they don’t want it.
Big Retirement Mistake #8: You Are Paying for Storage
Still don’t believe that too many Americans have too much stuff? According to self storage industry statistics, nearly one out of every 10 Americans (9.5%) rent offsite storage. Are you paying to store stuff you don’t use?
Easy Fix: If you have a storage unit, seriously consider whether or not it is a necessity in your life. Clearing it out will take an afternoon, a weekend or even a month or two, but getting rid of this burden could be well worth the short term hassle. Here is how one person tackled clearing out their storage unit.
Big Retirement Mistake #9: You Are Paying for College but Can’t Afford Retirement
According to a survey by T. Rowe Price, about 52% of parents surveyed felt that it was more important to help their child pay for college than to save for their personal retirement. Similarly, 53% of participants said that they would rather take money from their retirement fund if it meant that their children would not have to take out student loans.
Easy Fix: Take a moment to think clearly about the future. Not saving (or spending your retirement savings) now will have a profound impact on both you and your children. Are your children going to be able to take care of you in the future the way you are taking care of them now? Do they want that responsibility as you age? Do you want to give up your own autonomy and be beholden to them? Walk through a retirement calculator with your children for a clear picture of your — and their — financial future.
Big Retirement Mistake #10: You Sacrifice Your Livelihood to Care for Aging Parents
According to the Caregiving Action Network, more than 65 million people, 29% of the U.S. population, provide care for a chronically ill, disabled, or aged family member or friend during any given year and spend an average of 20 hours per week providing care for their loved one.
Caring for your aging parents can be a labor of love. In fact, many people find it to be one of the most rewarding experiences of their lives.
However, it is important to acknowledge the financial costs of care taking. There is the lack of income, but also the lack of saving for retirement during that time and also a potential reduction in Social Security income because you are not accumulating credits when you are not working.
Easy Fix: Actually, there is no easy fix here. However, a few things you should do before you take on a care taking role:
- Actively consider how you or you and your spouse can make up for financial losses.
- Get a really good handle on your current and future finances and assess how care taking will impact your future.
- Evaluate your parents’ finances. Can they compensate you financially? Is there a better financial solution for their care?
- Would merging households be a viable option to generate liquidity from the sale of a home to help fund care taking and reduce costs?
Big Retirement Mistake #11: Taking Social Security Too Early
According to a report by the Center for Retirement Research at Boston College, 90% of Americans begin Social Security retirement benefits at or before their full retirement age. In fact, the most popular age to start is 62, the earliest age possible.
Guaranteed retirement income — income that you will receive every month no matter what and for as long as you live — can be the key to a secure retirement. Social Security is one of the best sources of guaranteed retirement income. This is why maximizing your Social Security income is a good move.
Easy Fix: If you have not yet started your Social Security, the best thing you can do to live more comfortably in retirement, is to wait to claim your benefits. If you have reached normal retirement age, which is 66 for people who were born between 1943 and 1959, you can access 100% of your benefits.
Big Retirement Mistake #12: You Have too Much Debt
If you don’t have debt, you are in the minority.
According to this survey, 8 in 10 middle-income Boomers currently have some debt. Three in 10 devote more than 40% of their monthly income to debt and a quarter have a mortgage with more than 20 years remaining on it. More than half say they intend to enter retirement debt free, but only one-quarter of retired Boomers actually are debt free.
Easy Fix: Here are 13 tips for dealing with debt.
Big Retirement Mistake #13: You Hold Too Much Cash
Of all the tactics you can use to achieve a secure retirement, one of the easiest things you can do is to invest your money and earn returns on that investment. Doing this requires virtually no sacrifice, compromise or a lot of work.
However, a new study from BlackRock finds that Americans hold 58% of their investible assets in cash where little or no interest is earned.
Easy Fix: Get out of cash and into some kind of holding that can earn interest or dividends. Learn more about the best asset allocation for retirement.
Big Retirement Mistake #14: You Don’t Have an Emergency Plan
In addition to saving for college and retirement and just paying the bills, you should also always have an emergency fund. Before you are retired, experts recommend that you have the equivalent of 6 months of income saved and available. When you are retired, you probably don’t need quite as much since you won’t need to replace lost income if you are missing work. However, you do need cash on hand to handle the big and little financial issues that arise.
However, The Atlantic, uncovered shocking analysis from a study by the Federal Reserve Board. They found that nearly half of all Americans — many in the middle class — would have trouble coming up with just $400 to pay for an emergency.
Easy Fix: Set aside an amount of money to be used for emergencies. Be sure to replenish these funds when used up.
Big Retirement Mistake #15: Not Planning for Medical Costs
Medicare does not cover all of your medical expenses, not by a long shot.
According to recent data from Fidelity, the average out of pocket health care expenditure for a 65 year old couple today will be a whopping $285,000 — not including long term care costs. Healthcare is the second biggest retirement expense after housing.
What Can You Do About It:
- Include healthcare costs in your planning. The NewRetirement Planner helps you estimate these costs and applies them to your annual budgets throughout your retirement plan.
- Consider healthcare costs if you plan on retirement before Medicare eligibility at age 65. Explore 9 ways to cover your health costs for an early retirement.
- Engage in regular exercise and follow a healthy diet to keep the pounds off and keep your blood pressure at a lower level. Cutting out alcohol and cigarettes can also help you avoid possible medical conditions and expenses in the future.
- Re evaluate your supplemental Medicare coverage each year to make sure you have the best plan for your current condition.
Big Retirement Mistake #16: Not Having a Long Term Care Plan
Dementia. Stroke. Alzheimer’s disease. The prevalence of these health events is a big reason why you need to make planning for long term care an important part of your retirement plans.
While about 70% of Americans who get to age 65 will need some type of long-term care, many Americans are unprepared for this reality.
Easy Fix: Develop a plan. Insurance is only one option for funding long-term care.
The NewRetirement Planner allows you to try out different ways of funding care, from insurance and old age annuities to having a family member support you, the tool allows you to assess the pros and cons of different options and see how it impacts your retirement finances.
Big Retirement Mistake #17: You Don’t Think About Retirement Taxes
While taxes may be less of a factor after retirement than before, they can still add up to hundreds of thousands of dollars over your remaining lifetime.
Big Retirement Mistake #18: You Are Stuck in a Rut
Flipping your perspective enables you to see things in a new and different way.
This fresh approach can change your attitude and help spark creative ways of approaching a problem — even a problem like how to retire. If you are stressed about retirement, you might just need to change how you think about the problem and what you are doing.
Easy Fix: Here are 8 ways to flip your retirement perspective.
Big Retirement Mistake #19: You Aren’t Sure What You Are Going to Do in Retirement
Do you want to hear something kind of depressing? Adults aged 65 and older spend threefold more waking time watching TV than young adults. And, what is worse, they enjoy it less. In the American Time Use Survey, TV watching accounted for 25%–30% of waking time and half of leisure activity among adults aged >65 years.
Sure, we may be in the golden age of television, but that doesn’t mean that it is the best way to spend your golden years.
It is critically important that you retire to something interesting and engaging and not just retire away from your job. Knowing what you want to do in retirement is critical to maintaining your mental, cognitive and physical health.
Easy Fix: Make sure you have a plan for what to do in retirement. Not sure, explore these resources:
- 120 Big Ideas for What to Do in Retirement
- 4 Ways to Find Meaning and Prepare for Life After Retirement
- 17 Best Ted Talks on Retirement and Aging
- 20 Great Retirement Travel Ideas
Big Retirement Mistake #20: Underestimating Your Life Expectancy
It is not adequate to assume that you only need enough retirement assets to sustain your lifestyle through the age of 75, 85 or even older. The fact of the matter is – you have no idea how long you are going to live.
Statistics suggest that there is a greater than 50 percent chance that at least one partner from a couple in their 60s will live to the age of 95.
Does your retirement plan enable you to live till 95? Will you outlive your assets?
Easy Fix: Here are a couple of suggestions for planning for something that you can’t possibly predict, your longevity:
- Use a life expectancy calculator to help make a more educated guess as to your longevity
- Plan for a best and worst case scenario with the NewRetirement Planner. This tool allows you to enter an optimistic and a pessimistic goal age and assess your finances for either eventuality.
Big Retirement Mistake #21: You Don’t Have a Written Retirement Plan and You Don’t Keep it Up to Date
Only 30% of American have a long-term financial plan that includes savings and investment goals.
Furthermore, Americans tend to spend more time on research about vacation than they do on retirement planning even though retirement planning needs to be an ongoing activity.
When you retire, you are no longer living month to month or year to year. When you stop working, you are dealing with a finite set of financial resources that need to be budgeted to fund the rest of your life. You really do need a plan.
Easy Fix: Assess what you have and what you need for retirement. Find ways to improve your situation. Do it right now. The NewRetirement Planner is a detailed and reliable system. This tool will save your information so it is easy to make updates and improvements.