Three-quarters of American adults who are not yet retired say they plan to work past retirement age, according to a 2017 Gallup poll.
It's more common than ever for older adults to continue working at least part-time well into their 60s and even their 70s. While sometimes that's because these workaholics are truly passionate about their careers and never want to quit, oftentimes it's a result of poor financial planning.
Planning for retirement is playing the long game. It takes decades to save enough to be able to retire comfortably, and although a few mistakes along the way won't necessarily ruin your chances at retirement, it's critical to be able to adjust and self-correct before minor setbacks become major financial problems.
Sometimes, though, you may be unknowingly making mistakes that could hurt your chances of achieving a comfortable retirement. These blunders may seem innocent, but they could potentially be disastrous if left uncorrected.
1. Playing it too safe with your investments
Of course, you shouldn't be throwing every dollar you have toward the latest and greatest tech start-up in hopes of becoming an overnight billionaire. But that doesn't mean you shouldn't take any risks when investing for the future.
All investments carry some form of risk -- it comes with the territory. But some assets are "safer" than others. However, with fewer risks come fewer rewards, and the safest investments typically have much lower rates of return than their slightly more volatile counterparts. While that may not seem like a problem, even if you spend a lifetime only investing in the "safest" types of funds, you still may not accumulate enough to retire comfortably.
For example, say you started investing at age 22 and put $200 per month toward low-risk investments such as CDs and money market funds earning a 3% annual rate of return. If you continue saving at that rate, you'd have roughly $180,000 saved after 40 years. On the other hand, say you instead invested in stocks and were earning a 7% annual rate of return. All other factors remaining the same, you'd have around $480,000 after 40 years.
Of course, you won't see the exact same rate of return year after year -- especially with stocks, which are often a roller coaster of ups and downs. But historically, the stock market has yielded an average of 10% annually. So while you'll have good years and bad years, over a lifetime, you'll likely amass far more than you would by playing it safe with less-risky investments.
2. Overrelying on Social Security
Many people who are struggling to save for retirement may think that Social Security is the answer to all their financial problems. As a result, too many people end up relying on their benefits just to make ends meet during retirement. In fact, nearly half of married couples rely on Social Security for at least 50% of their income, and 21% depend on it for 90% or more of their income, according to the Social Security Administration.
While Social Security can help cushion your own retirement savings, your benefits shouldn't be your only source of income. The average person age 65 and over spends around $3,800 per month, according to the Bureau of Labor Statistics, yet the average Social Security check is just $1,300 per month. So if you're behind on your retirement savings and assume Social Security will make up for it, you may be in for a rude awakening.
Furthermore, Social Security isn't necessarily guaranteed income. With baby boomers retiring in droves, there's more money flowing out of the system in the form of benefits than there is coming in from taxes. And according to the Social Security Administration's 2018 Trustees Report, there will be a cash shortage by 2034, and benefits may need to be cut by up to 21%. Of course, this is assuming Congress won't come up with a solution before then, but it's not the wisest idea to leave your retirement in the hands of the government and cross your fingers it will all work itself out.
3. Waiting too long to start saving
In a perfect world, you'd start saving for retirement in your early 20s (or even earlier!) and save consistently until the day you retire. But that's not how it plays out for most people. Considering the fact that 42% of baby boomers have nothing at all saved for retirement, according to the Insured Retirement Institute, a lot of people are waiting far too long to start saving.
It's understandable. Life gets in the way, saving for retirement gets shoved to the back burner, and you tell yourself you'll start saving once you get promoted, find that new job, pay down your other bills, etc. But the fact is, it gets monumentally more difficult to build up your savings the longer you put it off.
For example, say you have a goal of saving $750,000 by the time you turn 65. Assuming you're earning a 7% annual return on your investments, if you start saving at age 20, you'll need to save around $225 per month to reach that goal. But if you wait to start saving until age 30, you'd need to save just over $450 per month. Put it off any longer, and catching up becomes exponentially more difficult. If you don't begin saving until age 50, for instance, you'd need to stash away $2,500 per month to reach your savings goal by age 65.
Even if you think you're doing a solid job of saving for retirement, these types of mistakes are subtle, and you may not even realize you're making them until it's too late. To avoid any surprises come retirement time, make sure you have a solid retirement plan, and check in periodically to ensure you're on the right track to reach your financial goals.