A lot is said about money mistakes people make after they have retired, like spending too much or cashing out pensions too early, but what about the mistakes people make before they retire? People can recover from poor investment choices or shocks in the market, but Thayer Partners LLC Principal Chris Wilmerding shares six pre-retirement mistakes that are harder to correct — and cost a lot of people a lot of money.
6) Believing Social Security is enough
This belief is fairly common: plenty of people simply assume that Social Security (or their company-sponsored pension) will be enough for them to retire. This belief is fueled by a lack of knowledge, such as not knowing how much you need to retire or failing to account for inflation. While Social Security is important, it shouldn’t be the be-all, end-all of your retirement planning.
5) Failing to plan
This goes almost hand-in-hand with believing that Social Security or a company pension is all you need to retire, but even when people realize they’ll need more than one income stream, they still fail to plan for retirement. Think of it this way: If you hop in your car to go to the store, it’s a lot easier and faster to get there when you have good directions. If you have no idea where you’re going, you’re going to waste a lot of time driving around. The same idea applies to planning for retirement: having a “road map” that shows you where you want to go is key.
4) Thinking you won’t get sick
Some people don’t like to think about “what if’s,” especially if it means imagining that they might get hurt or sick. The truth is that a good percentage of people are going to become ill during their retirement years — or even before. Even if you want to believe you’ll be hale and hearty forever, you need to be pragmatic and make arrangements for healthcare in case you do get sick. After all, no one drives around thinking they’re going to get into a car accident, but you have insurance on your car for precisely that reason: just in case.
3) Paying high investment fees
If you don’t know how your adviser gets paid or how much you’re paying them, you need to find out. High investment fees are detrimental to you: Not only do they take money out of your pocket; they can also hurt your portfolio’s growth. Portfolios with high fees don’t outperform others on the market, either. Look for more economical investing options and put the money you save directly to financing the kind of future you want to have.
2) Thinking you know how you want to live
Many people assume they will live the exact same way once they retire. Some don’t consider downsizing or moving as viable options; even fewer people curb their expenses, instead believing they can keep spending the way they do while they’re working. Or perhaps you just think you’ll continue working forever. Others assume they won’t need to work a single day after they retire. Think about how quickly life circumstances can change, though. Your retirement plan needs to be versatile and flexible enough to cover you, no matter what you think you want to do today, tomorrow, and when you actually retire.
1) Not saving
This is the single biggest mistake people make: simply not saving. Whether it’s because they think Social Security will be enough or because they’re paying down debts, have other immediate spending priorities or even just because they think retirement is decades away, too many workers fail to save — and fail to save early. Putting away even just a little bit can make a big difference and the sooner you start the better.