After years of dedicating yourself to a career and a family, retirement is a welcoming moment in a person’s life. It’s the moment where you can say good-bye to the 9 to 5 grind and live out your golden years in true bliss. You may even have plans to pursue passion projects, travel the world, and spend much-needed quality time with friends and family. While dreaming about retirement can be fun, if you haven’t adequately planned, bringing your dreams to fruition is highly unlikely.
You’d be surprised how many people end up struggling throughout their retirement years. From returning to the workplace to being overwhelmed by debt, those who failed to plan face an uphill battle in what should be the most joyous times in their lives. If you don’t want this to be you, you must avoid these common retirement planning mistakes.
Relying Solely on Retirement Accounts
One of the biggest mistakes you can make when planning for retirement is assuming their 401K or pension accounts are enough to live comfortably on. While your company may offer an attractive retirement package with employee contributions and health benefits, it may not be enough for what you have planned.
Most retirement accounts offered by employers require you to meet specific criteria before you can receive the full benefit. For example, if you’re a state worker with a pension plan, it often requires you to work for the state for at least 10 to 25 years to get the full contribution from your employer and additional benefits. If you get fired or quit before this time, those benefits are null and void.
Another factor to consider is that once you start withdrawing funds from your retirement account, it is counted as income. As all income is taxed, you’ll also have to pay more money. For example, if you take $50,000 out of your retirement account, the government will expect you to pay approximately 25% or an additional $12,500, which will reduce the amount you have left to survive.
Relying on Social Security Benefits
Social security is a federal government program to provide partial income to qualifying seniors once they retire. To apply, you search for social security office locations and schedule an appointment. After the application is processed, you’d receive a monthly check to help cover living costs. While receiving these benefits can help you fund your retirement dreams, not having a backup income source could leave you stranded.
Presently, the average payout for social security is between $1,500 and $3,000, depending on when you apply. This amount, however, is not guaranteed. The Social Security Administration currently distributes these funds from a trust. Should those funds run out (current predictions is that this could happen in 2034, if not sooner), this benefit amount will dramatically decrease or abruptly end. If you have no other financial source to draw from, this could leave you in a severe financial bind down the road.
Not Having a Retirement Budget
How much money do you need to retire comfortably? Not knowing the answer to this vital question could cause you some trouble down the line. You’ll retire, start using the money you have saved, only to run out in a few years. Though you can’t predict the future, having a retirement budget can give you a ballpark idea of how much you’ll need to cover living expenses and other interests.
How do you know what you’ll need? Start by reviewing your current budget and expenses. Categorize your costs into essential and non-essential. Then, factor in things like taxes, healthcare, long-term care, and entertainment. These calculations should give you a general idea of how much you’ll need annually. Finally, add a few extra thousand bucks for miscellaneous and emergency costs.
When you think of retirement, you think of leaving your 9 to 5 behind, traveling, having fun, and spending the rest of your years doing things you enjoy. Getting to this point, however, doesn’t come without early and efficient planning. If you’ve made any of the mistakes mentioned above, now is the time to change course for a brighter, stress-free future.