We all want to make the best financial decisions possible, but that can be challenging at times because nobody has all the right answers. Everyone's situation is different, and the best choice for one person may lead to disaster for another.
However, there are some money moves that are risky no matter what your scenario looks like, and a good number of Americans are making one mistake that could completely derail an entire retirement.
The retirement move that's riskier than you may think
Saving for your senior years isn't easy, especially as retirement continues getting more expensive. Some workers, then, are getting creative with how they plan to fund retirement.
Approximately 70% of homeowners believe their home will be worth more by the time they retire than it is now, according to a recent report from Unison. And of that group, 64% of people say that that expected value increase is a significant part of their retirement plan.
This is a risky move because you don't always have control over the future value of your home. Although home values do often increase over time, that's never a guarantee. If the real estate market takes a significant hit or the country experiences another Great Recession, there's a chance housing prices could plummet and your home may not be worth nearly as much as you'd hoped.
Especially if you're still decades away from retirement, there's no telling what the housing market will look like by the time you retire. Nearly a third of homes decrease in value over a five-year period, according to the Unison study, and over a 10-year period, roughly one in five homes will be worth approximately the same or even less than they are today. So if you're banking on using your home to fund your retirement, you may be in for a rude awakening if you reach your senior years and your house is worth less than you expected.
How to avoid putting all your (nest) eggs in one basket
This isn't to say that your home value can't be a part of your retirement plan, because in some cases, that can be a smart move. If the market is strong and your home's value has increased significantly, you can sell your house for a pretty penny and use the savings to afford a more comfortable retirement lifestyle.
However, your retirement shouldn't hinge on your home increasing in value. That means you'll need other sources of income to get you through retirement if your home ends up being worth less than you expected.
Social Security benefits can be one of those sources of income, although it's unlikely you'll be able to survive on your monthly checks alone. The average retiree only receives around $18,000 per year in benefits, according to the Social Security Administration, and for most people, that's not enough to live comfortably.
The bulk of your income, then, will likely need to come from your retirement savings. Start saving as early as you can to take full advantage of compound interest, and consider whether you're willing to potentially make some financial sacrifices if you're falling behind. If you don't make these sacrifices now, you may need to make them in retirement if you're forced to slash your budget just to afford the basics.
What to do when boosting your savings isn't enough
If you're nearing retirement age and simply can't afford to increase your savings significantly, you do have a few options.
For one, you could consider moving to a less expensive neighborhood or city. Even if your home hasn't increased in value over the years, selling it and moving somewhere where the cost of living is significantly lower can still save you loads of cash -- not just on housing costs, but in nearly every other area of your budget as well.
Delaying Social Security benefits is another option. For every month you wait past your full retirement age (FRA) to claim benefits, you'll receive slightly bigger checks. If you have a FRA of 67 and claim benefits at age 70, you'll receive your full benefit amount plus an additional 24% each month -- and that bonus can go a long way if your nest egg isn't as strong as you'd hoped.
Finally, a third option is to simply rethink your retirement lifestyle. You don't necessarily need to take a traditional approach to retirement, and in some cases, you may be better off going the non-traditional route. In fact, 92% of workers currently in their 40s say they plan to continue working part-time in retirement, and nearly two-thirds say they'd like to take an "unretirement" approach -- which involves continuing to work but taking a few mini-retirement breaks every few years. Working part-time can supplement your income in retirement to help you afford a more comfortable lifestyle, while still being able to enjoy plenty of downtime.
Saving for retirement requires a well-balanced plan. If you lean too heavily on one source of income -- like betting on your home increasing in value -- you're potentially putting your finances in jeopardy. But when you create a solid retirement strategy and work to maximize each source of income, you'll be in a much better position financially.