Many of us spend more time planning for holidays than preparing for the golden years of retirement. As a result, basic mistakes are often made while trying to fund retirement goals. Checkout these five top mistakes people make to screw up this crucial saving.
Mistake 1: Not setting specific goals. Many people will say something like, “I want to retire in my 60s.” OK, but pinpointing the age you want to retire is not even half of it. Ask yourself:
- How much will you spend each year in retirement?
- How much have you saved?
An example of a more specific retirement goal would be: “I want to retire at 67 and spend $95,000 a year.” The more specific, the better!
Mistake 2: Focusing on highest return possible, rather than needed returns. Don’t obsess with how much your portfolio can make or how your friend’s investments are performing. How much return your portfolio generates means very little when we fail to consider the big picture.
More important is identifying how much you need to make to live comfortably in retirement. How much income do you need each month to survive? How does your investment income play into your other retirement income sources, such as pensions and Social Security?
Stop focusing on the unrealistic returns big-time investors claim to make and start focusing on what you actually need for your goals.
Mistake 3: Focusing too much on financial news and headlines. Everyday we can turn on the news and see a special segment about the next best investment that a loud-mouthed TV personality swears by. We don’t want to miss out – so, should we jump on the bandwagon? Wrong move. In good markets (or bad), letting media headlines influence your investing strategy spells for a disaster.
Meet with your financial advisor. Put a financial plan in place and identify specific goals for you. And,turn off the news for a while. Their goal is to increase viewership, not help you reach your goals.
Mistake 4: Overestimating a portfolio’s lifespan. Let’s say you are 91 and retired more than35 years ago – that’s longer than the number of years worked. With proper planning, you should be making more retired than you did each while working.
Well, guess what? That is the exception. Pensions are becoming extinct. The rest of us depend on 401(k)s,other savings, and Social Security through increasingly longer retirements.
Additionally, advances in medicine keep people alive longer. According to the National Institute on Aging, “The rising life expectancy within the older population itself is increasing the number and proportion of people at very old ages.”
Mistake 5: Fail to check beneficiaries. Consider three sisters receiving an inheritance from their recently deceased dad. The money came from their father’s individual retirement account (IRA), but the sisters also learned that he held an annuity twice as large as the IRA.
Their father’s estate plan named all three sisters as equal beneficiaries. What their dad didn’t know, or forgot, was that his annuity named the oldest sister as the sole beneficiary. The annuity trumped the estate planning documents and the oldest sister got all the money.
Any good sibling knows dad wanted the money split three ways, so of course the oldest sister split it equally, right? Wrong. She took the entire annuity and bought a yacht.
So, what now? Make the Time. Think about how much time you will spend planning your holiday this year. And then take at least the same amount of time and fix these basic mistakes.
Source: Financial Media Exchange.