Between raising a family and managing your career, you have worked hard over the years. Now, retirement — and all of the freedom that comes with it — may finally be close at hand. But as you prepare yourself to enter retirement, consider taking steps to ensure you don't jeopardize your plans.
Financial mistakes are frequent in every life stage, and careful consideration and planning could help you avoid some of the most common retirement mistakes. Learn what steps could help you enjoy smooth sailing into the next part of your life.
Mistake 1: Not Planning for a Change in Lifestyle
Most people know they need to look at their savings and investments — and how those assets are allocated — as part of the retirement planning process. A financial plan for how you'll invest and draw down your savings once you hit retirement could be an excellent place to start. But consider taking this a step further by planning your future lifestyle too.
This is one of the retirement mistakes that sneaks up on many people. While many people focus on the big-picture financial to-dos, they sometimes forget to consider what their day-to-day lives will look like once they transition into this new phase. These retirees usually find themselves bored, unhappy or dissatisfied with retirement — not because they failed to plan financially, but because they never thought about how their lifestyles might change (or how they wanted their lifestyles to change).
Fix 1: Add Lifestyle Planning to Your Financial Planning
Consider creating a plan that outlines how and where you'll spend your time in retirement when you no longer have a full-time job or the responsibilities you had before you retired.
Where do you want to live? What does your dream home look like? Is it a house in the suburbs, or do you want to downsize and move back into a city condo? Will you want to travel a lot, or will you prefer to spend time around your home being involved in your local community?
Think about the big picture, but don't neglect the day-to-day. How will you spend your time now that you won't be at the office 40 hours every week? Will you volunteer? Pick up a part-time job? Start your own business — or pick up a new hobby?
Think through your answers to these questions and consider how they might impact your financial plan. You may want to make adjustments now — while you're still working — so your retirement budget can afford you the lifestyle you want.
Mistake 2: Being Too Generous With Your Financial Cushion
You love your family and would do anything for them. In fact, you probably have done everything you could for them over the years. Even though now is the time to start taking care of yourself, you may still want to provide as much financial help and support as you can. But this can be a serious retirement mistake that could put you in the position of outliving your money — if you're not careful.
Fix 2: Make Gifts Part of Your Planning
Of course, you can help your family members. But it could help to account for what you want to give — and how you'll give it — before you retire. For example, if you'd like to help pay for your child's college education, you could contribute to a 529 college savings account for them now, before you stop working.
There are many ways to fund what your loved ones may want to do someday, such as attending college or buying a new home. Though it may not be ideal, your children or grandchildren could always take out student loans or get a mortgage to buy what they want. But retirement? Well, there's no financing for that.
Consider prioritizing your own financial needs first. Doing so could help give you more security to live out the retirement you want and may help reduce the chances you'll need to rely on your family down the road if you run out of money.
Mistake 3: Tapping Into Your Benefits Too Soon
Another big retirement mistake? Taking out Social Security benefits as soon as you're eligible — when you don't need the money to pay for your expenses. Even though you can start receiving a check from the Social Security Administration (SSA) when you turn 62, doing so may not be the best financial move because your benefits will be reduced.
If you were born between 1943 and 1954, your full retirement age, according to the SSA, is age 66. But if you start taking Social Security four years earlier, you only receive 75 percent of the full benefit you'd be entitled to if you waited until the full retirement age. That's a significant amount you won't get to enjoy as retirement income.
Fix 3: Consider Waiting to Take Social Security
Every year you don't take your benefit, starting at age 62, the amount you'll receive increases by 8 percent until it caps out at age 70. Consider waiting until age 70 to start receiving benefits from Social Security, if possible.
All these mistakes — and their solutions — are related to each other. Avoiding the first two retirement planning mistakes on this list (not giving away too much of your financial cushion and making sure you map out a reasonable retirement budget) will help your savings stretch all the way to the age when you can start receiving the biggest benefits check possible.