We all make mistakes from time to time, and often, they aren't particularly life-altering. But when it comes to retirement planning, a mistake you make now could lead to huge headaches down the road. And unfortunately, regrets about retirement planning are all too common.
A recent Clever survey found that about half of all retirees admit they didn't prepare themselves adequately for life after the workforce. Here are three things you can do to avoid following in their footsteps.
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1. Familiarize yourself with retirement savings
Two-thirds of those surveyed said they regretted that they didn't understand retirement savings better while they were still working. This is a little vague. Not understanding retirement savings could mean not understanding how their retirement accounts worked, or it could mean not understanding the importance of building personal retirement savings. Both are key.
Most retirees have to rely primarily on their personal savings as they age. Pensions are no longer as common as they once were. Social Security will still help you out -- yes, even if you're decades from retirement -- but checks don't go as far today as they did in previous years. And the program could face benefit cuts in the future. So building up your nest egg is crucial if you want to maintain a comfortable lifestyle in retirement.
As for understanding how retirement savings and retirement accounts work, that will depend on how you're saving for your future. Talk with your employer if there's anything you don't understand about your workplace retirement plan. And don't be afraid to explore other homes for your savings, including IRAs or health savings accounts (HSAs). No matter which account(s) you choose, be sure to familiarize yourself with their annual contribution limits and tax rules so you don't encounter any surprises.
2. Focus on managing your money well right now
Many retirees regret not managing their money as well as they should have when they were working. This could have made it more difficult for them to save as much as they needed for retirement.
Sometimes, a budget and a clearly defined retirement savings plan is all you need to correct this issue. Paying attention to where your money goes can help you identify opportunities to cut back spending, and a clear retirement plan can help you figure out how much you need to save each month or each pay period in order to have enough for the retirement you want.
But things are trickier for those who have a lot of debt or who need a large percentage of their paychecks to cover their monthly bills. In this case, the best approach might be to look for ways to increase your income, like starting a side hustle or searching for better-paying employment. Put whatever extra money you're able to take in toward retirement to help build your nest egg more quickly.
3. Estimate how much you need to save for retirement
More than half of the retirees Clever surveyed said they didn't know how much they needed to save for retirement. This can lead to underestimating your retirement costs, which can be a big problem once you're living off your savings.
One common rule of thumb for retirement savings is to save 10 times your income. This is supposed to help your money last at least 30 years, but it may not work this way for everyone. It's based on several assumptions, like the fact that you'll retire at 67. If you retire sooner, you may need more money, while those who retire later may be able to get by on less. You can use 10 times your salary as a baseline, but you also want to take personal factors into account.
Those who plan to travel often, expect to live long, or want to retire in an expensive area will probably need to budget additional cash for retirement. The same goes for those who believe they could face costly medical expenses as they age. It's not unrealistic to think that you may need $1 million to $2 million to cover all your retirement costs, and this figure could be even higher for young workers who won't retire for decades.
This isn't a comprehensive list of retirement regrets a person can have, but if you're able to avoid the three listed above, you're off to a pretty good start. If you've made some of these mistakes already, try not to stress too much. Come up with a game plan to resolve these issues and do your best to save routinely for retirement going forward.
