Here are some retirement planning mistakes to avoid
Ask retirees if they have any regrets about their retirement planning, and usually top on their list is wishing they would have saved more money. Here are other retirement planning mistakes workers make and advice on how to avoid them.
RELOCATING ON A WHIM
Too many folks have trudged off willy-nilly to what they thought was a dream destination only to find that it’s more akin to a nightmare. The pace of life is too slow, everyone is a stranger, and endless rounds of golf and walks on the beach can quickly grow tiresome.
Test the waters before you make a permanent move. And if you do pull up stakes, consider renting before buying.
PLANNING TO WORK INDEFINITELY
While more than half of today’s workers plan to continue working in retirement, 19% of adults ages 65 and older are employed, according to Pew Research Center.
You could be forced to stop working and retire early for any number of reasons, such as poor health or a layoff. Assume the worst, and save early and often.
CLAIMING SOCIAL SECURITY TOO EARLY
You can start taking retirement benefits at 62, but you might want to wait if you can afford it to accrue a bigger lifetime benefit.
Let’s say your full retirement age, the point at which you would receive 100% of your benefit amount, is 67. If you claim Social Security at 62, your monthly check will be reduced by 30% for the rest of your life.
But if you hold off, you’ll get an 8% boost in benefits each year between ages 67 and 70, thanks to delayed retirement credits.
“If you can live off your portfolio for a few years to delay claiming, do so,” says Natalie Colley, a financial analyst at Francis Financial in New York City. “Where else will you get guaranteed returns of 8% from the market?”
BORROWING FROM YOUR 401(K)
Taking a loan from your 401(k) retirement-savings account can be tempting. As long as your plan sponsor permits borrowing, you’ll usually have five years to pay it back with interest.
But short of an emergency, tapping your 401(k) is a bad idea.
Meghan Murphy, a vice president at Fidelity Investments, says you’re likely to reduce or suspend new contributions during the period you’re repaying the loan. That means you’re short-changing your retirement account for months or even years and sacrificing employer matches. You’re also missing out on the investment growth from the missed contributions and the cash that was borrowed.
PUTTING YOUR KIDS FIRST
Sure, you want your children to have the best. But footing the bill for private tuition and lavish nuptials at the expense of your own retirement savings could come back to haunt all of you.
As financial experts note, you cannot borrow for your retirement living. Instead, explore other avenues other than your 401(k) plan to help fund a child’s education, such as scholarships, grants and less expensive in-state schools. Another money-saving recommendation: community college for two years followed by a transfer to a four-year college.