As much as you’d like to blame external factors such as the Covid-19 pandemic for ruining retirement plans, the truth is that your own choices might also negatively impact your savings. Without adequate retirement savings, your golden years are likely to be full of financial strife.
Studies show that a majority of people have doubts about whether they’ll have enough money tucked away to give them a comfortable life in retirement. According to a 2019 Retirement Confidence Survey, only 23 per cent of respondents said that they were “very confident” they would have enough money for a comfortable retirement.
And although statistics show that a majority of millennials won’t be able to retire till after age 70, no one can work forever. Advanced age also sometimes comes with health problems that make it difficult to continue working in old age.
Thanks to advanced healthcare, people are now living longer than ever before. But a longer life span also means that you will need even more money to live comfortably in retirement. In simple words, you will have to plan for longer than the average life expectancy.
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Additionally, properly planned retirement also gives you opportunity to check off your bucket list. Chances are that during your working years, you’re held back by responsibilities that make it more difficult to pursue certain experiences.
With that in mind, you should do your best to safeguard your retirement financial future. To do so, avoid these common mistakes:
Having no retirement plan
The biggest mistake many people make is having no retirement plan. Without a comprehensive plan for your future, you can’t measure progress or even or even tell if you’re going in the right direction.
Think about it like this: would you get on a bus if the driver only had a vague idea about the destination? As the driver of your financial future, you need to have a clear destination in mind and a plan on how to get there.
A sound retirement plan need not be a massive production. At the basic level, you should be aware of how much money you need to have to meet your cost of living in retirement.
According to financial experts, you should calculate how much you will spend per year and then account for 30 years post-retirement.
Remember to also factor in inflation as it can significantly reduce your money’s buying power over time.
When you have a figure to work with, make a reliable plan on how you can achieve this goal before your retirement age. Ideally, you should put away 10 per cent to 15 per cent of your income into your retirement account each month.
Keeping up with the Joneses
“We buy things we don’t need with money we don’t have to impress people we don’t like,” says a popular quote.
In today’s world, this has never been truer. Social media has made it easier for people to compare their lives with that of their peers.
With the advent of instant stories, you get a front row seat to witness the kind of lifestyle others have.
This can make you feel like you have to also live the same lifestyle. If you’re not making enough money to comfortably afford the said lifestyle, you are likely to sacrifice your retirement savings to keep up. But while living within your means isn’t always glamorous, it is definitely smart. You don’t want to spend your whole life pretending to be rich and retire into poverty.
Rather than going on fancy vacations and buying flashy cars, try being content with what you can comfortably afford. Create a realistic budget and stay within it. You can save up for luxurious vacations and fancy gadgets without dipping into your retirement nest-egg.
Having the wrong saving priorities
You might be saving money, but if you don’t have the right priorities, you run the risk of retiring poor.
One of the most common mistakes parents make is prioritising saving for their children’s college education over their own retirement.
But if you don’t have enough money, your children can take out loans to finance their college education. They might also benefit from grants and scholarships, or partly finance their education by having jobs. But if you don’t have enough saved for retirement, there’s no loan or grant to bail you out.
It is unwise to expect that your adult children will take care of you in retirement. Firstly, there’s no telling if your children will be empathetic with your situation or even be in a position to help.
Your children will have their own financial responsibilities and like everyone else, they run the risk of unemployment, medical emergencies, and having underperforming businesses. In worst case scenarios, you might even end up having to support your adult children in your old age.
For these reasons, always prioritise your retirement savings over saving for your children’s college education. If you have enough going into your retirement fund, you can channel the rest of your savings into other savings accounts for children’s education, vacations, fancy gadgets and so on.
Having a lot of debt
When you’re approaching retirement, you should have as little debt as possible. In retirement, your income will be lower and if you’re channeling a significant part of it into clearing debts, your retirement life might not be as comfortable as you’d hoped.
Work on paying off all major debt (such as mortgage and car loan) as you approach retirement. Clearing off these debts in time might mean working a part time job for a while or cutting back on your spending some more.
Whatever it takes, make sure that you’re not going into retirement with the weight of big debts on your neck.
Failing to invest effectively
You might be putting away good amount of money each year for your retirement. But if you’re not deploying these funds effectively, they can underperform and underserve you.
To get the best results, it is always advisable to work with an experienced and trustworthy investing professional. They will help you choose the best investments to keep your retirement plan on track.