Very few people are experts at managing their finances, planning retirement, building wealth, and ensuring a secure future. Effective money management is often perceived as being: 1) too hard, 2) not immediately important, 3) something you can tackle next year or 4) too expensive (if you think you need to hire an advisor).
In fact, studies show that less than 30% of Americans have a long-term financial plan.
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However, effective financial and retirement planning is important and it can be easy – especially if you know the mistakes to avoid.
Here are the 12 of the worst financial and retirement planning mistakes and easy steps you can take to overcome them today. Like right now even!
Mistake #1: You Think Retirement Planning is All About Your 401(k)
When you ask someone if they have a retirement plan, the most common answer is – “Yes! I am saving into a 401(k).”
No doubt, this is fantastic. You absolutely need to save. Saving money is a foundational element of a retirement plan, but it is far from everything you need to consider and it is not necessarily the key to your long-term wealth and security.
A retirement plan is a written document showing all aspects of your current and future income, expenses, debts, and assets.
A retirement plan is a detailed roadmap to your financial security now and forever.
How do you get this detailed roadmap? Forbes Magazine called the NewRetirement Planner a “new approach to retirement planning.” It is an easy-to-use, comprehensive, do-it-yourself planning system.
These tools make it easy and convenient to create and maintain a detailed and flexible retirement plan. Get started now…
Mistake #2: Thinking a Quick and Simple Retirement Calculation is Sufficient Planning
Retirement calculators are everywhere on the internet. And they seem reliable. They come from all kinds of reputable (and not-so-reputable) companies.
Beware of These Simple Tools! You can NOT be assured of a secure future using one of these simple retirement calculators. These simple tools use hundreds of assumptions and averages that do not reflect your situation! There is no way you are “average” on all aspects of a complete financial picture.
Mistake #3: You Aren’t Aware of All the Levers You Have For a Secure Future
Retirement savings are a critical component of a retirement plan. However, your savings are not the only important element of your future security. In fact, you might be surprised to know that savings may not even be your most valuable lifetime asset.
Other decisions you make and the assets you have are often far more valuable than the sum of your savings.
For example, did you know that:
Delaying the start of Social Security can literally gain you hundreds of thousands over your lifetime?
If you own your home, you can tap your home equity for retirement, gaining you more thousands – if not millions to use for retirement?
Planning to reduce expenses in retirement can dramatically improve your retirement cash flow? (Downsizing or retirement abroad could also enhance your lifestyle.)
Accelerating debt payoffs can sometimes be a better use of money than saving into your 401(k)?
Careful tax and retirement income planning can also gain you hundreds of thousands over the course of your life?
Passive income is an increasingly popular strategy for boosting wealth? What’s more, you may want to consider how interesting retirement work can keep you mentally and physically healthier (and wealthier).
There are Literally Hundreds of Other Levers: There are hundreds and hundreds of inputs that go into creating a detailed and complete retirement plan – and many of these levers will have a higher lifetime value than the sum total of your savings and investments.
The NewRetirement Planner has more levers than any other online resource – the tools go well beyond savings and investments.
Mistake #4: You Worry that Savings Are the Only Route to Retirement Security
You don’t need to despair if you fear you aren’t saving quite enough for retirement.
Everyone can find a path to a secure future. It may take a bit of compromise and trade-offs, but it is possible.
The NewRetirement Planner is detailed enough with over 250 possible inputs to enable anyone to find their own unique path to financial security – and a happy retirement.
Mistake #5: You Don’t Think of ALL Financial Decisions as Retirement Decisions
We make big and small financial decisions all year every year. Do you:
- Get the pumpkin spice latte or make coffee at home?
- Get take out or boil pasta for dinner?
- Splurge on the Hawaiian vacation or go camping?
- Buy a used car or a new luxury import?
- Buy the house with the extra bedroom and three-car garage or something more modest?
Your answers to all of these questions and every single financial decision you make will have an impact on your current AND future finances.
Most people think of these decisions as a monthly budget or a short term financial planning issue. However, every bit of money you spend, save, or earn culminates in your retirement security.
Mistake #6: You Think of Finances as Simply Inflow and Outflow
It may be useful for you to think about your finances not as a monthly inflow and outflow, but rather as a big pool that you fill up or drain over your entire life. Think in terms of the lifetime value of your financial decisions rather than simply how it impacts you today.
You see, in life, you have a finite amount of time to create a finite amount of money. That money is used to fund your entire life. Spending more now, means that you have less to spend later. Saving more now means spending less in the near term, but more in the future.
Creating and maintaining a detailed retirement plan is a great way to visualize and manage your total pool of resources over your entire lifetime.
Dive in! Get your pool started now with the NewRetirement Planner.
Mistake #7: Prioritizing Money Over Your Time
Can You Retire Earlier?
Most people are worried about their ability to pay bills and save for retirement. However, how you spend your time – the kind of work and leisure you do and how early or late you choose to retire – are what is truly important.
Time is the key factor if you believe that happiness and fulfillment are the measures of success. Study after study have shown that how you spend your time is what results in your happiness – not how much money you have.
It is not uncommon for someone to toil away at a job they don’t like in order to save enough money to gain financial freedom. But it doesn’t have to be this way. Options include:
- Working more for a shorter period of time to get to an earlier retirement
- Achieving passive income sources
- Working less, for potentially less money but more freedom
- Finding work that feels like play
- Spending less now (or in the future) to retire earlier
- Tapping into resources and opportunities beyond savings that can help you achieve an earlier retirement
Use the NewRetirement Planner to explore different scenarios for work, passive income, reduced expenses, and more to discover how to best use your most valuable asset – your time.
Mistake #8: You Don’t Treat Your Retirement Plan as a Living Document
Okay, let’s say you are doing better than most and you already have a written retirement plan. That’s fantastic. However, the real trick for more wealth and security is to keep it updated.
Your retirement plan should be a living document, and retirement planning needs to be an ongoing process.
Too often people meet with a financial advisor or do an online retirement calculator and think that their job is done.
Unfortunately, things change. There are external factors that impact your finances (stock markets, real estate prices, inflation, etc.) as well as internal factors (like your health and family, goals).
Any detail can have a big impact on your personal retirement plan.
The NewRetirement Planner makes it easy to keep up with all changes in your life and immediately see how any new developments impact your short- and long-term financial health.
Mistake #9: Overlooking Some of the Biggest Retirement Costs
Getting your retirement plan right means visualizing your future and creating plans for all potential expenses.
For most people, the biggest overlooked cost is healthcare spending. Out of pocket medical costs can often total nearly $300,000 – more than the lifetime value of your Social Security income.
The NewRetirement Planner helps you account for all of the expenses you might overlook. The system even helps you create a detailed and personalized estimate of your out-of-pocket medical costs and helps you plan for the possibility of needing long-term care.
Mistake #10: 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.
There are tax considerations, required minimum distribution rules, figuring out how to make your money last as long as you do (no matter how long that turns out to be), growing your money while minimizing risks, and many other considerations.
The NewRetirement Planner can help you plan and create a holistic retirement income strategy.
Mistake #11: You Aren’t Prioritizing YOUR Future
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 they spend an average of 20 hours per week providing care for their loved one.
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.
Paying to help your aging parents or your children may not be the “wrong” decision, but in many cases it can really hurt your chances of having a secure future.
Think inter-generationally. Use the NewRetirement Planner to document family costs and see what happens to your short and long-term finances with or without these particular expenses. Strategizing how to pool resources across generations means more long term wealth for everyone.
Mistake #12: You Haven’t Thought Through What is Really Important to You
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.
Be sure to incorporate what is important to you into your current financial plan and your future retirement plans.
