Your retirement is likely the largest financial goal you'll ever have in your life. Plan for it well, and you might just be able to support yourself for decades without ever having to work again.
Yet because retirement is such a large and long-term goal, it's easy to get off track while working toward it. Here are five things you definitely should not do while planning for your retirement.
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1. Don't wait too long to start
Despite all the ups and downs in the stock market, over the long haul, it has provided compound average returns around 10% annualized. While there are no guarantees that will continue, the reality is that at any positive return rate, the more time you have on your side, the more compounding will work in your favor.
Say you want a nest egg of $2 million in retirement and you are willing to assume those 10% returns will continue over the long haul. If you start early in your career and give yourself 40 years for your money to do the heavy lifting for you, you'll only need to invest around $184 every month to reach that goal. Wait until you're mid-career with 20 years left, and you'd need around $1,317 per month. If you're late in your career with just 10 years remaining, that amount skyrockets to about $4,882 every month.
If you think it's hard to come up with a few hundred dollars every month early in your career, imagine how difficult it will be to instantly go from $0 to several thousand each month as you near the end of it.
2. Don't depend too much on Social Security
While most Americans will get something from Social Security, the reality is that the program was never intended to be your sole source of income in retirement. As of September 2023, the average retiree received $1,841.27 each month in Social Security benefits.
That amount is enough to prevent abject poverty in most parts of the country, but it doesn't provide much more than that. In addition to that modest overall income level, the program's trust funds are expected to run out of money by 2034. In the absence of changes to the program, that would force a benefit cut of around 20%.
It is likely that Congress will patch Social Security to cover that shortfall. If the last round of patches is any indication, that patch will probably involve some combination of tax hikes and benefit cuts. So while there are good reasons to believe that Social Security will still be there in the future, there are also excellent reasons to not be overly reliant on it.
3. Don't pass up your employer's matching money
Many employer-sponsored retirement plans come with a match. While those matches vary by employer, the most common one is 50% of whatever you contribute, up to 6% of your salary. A 50% boost to your savings is an incredible amplifier, and it can go a long way toward helping you reach your goal.
In fact, I'd go so far as to say that seeking to maximize the match in your employer-sponsored retirement plan is hands down the first investment you should make. Missing out on that match simply puts more of the burden of saving for your retirement on you.
4. Don't expect that you will work as long as you'd like
People born in 1960 or later need to start collecting at age 67 to receive full Social Security retirement benefits. Access to Medicare for health insurance typically starts at age 65. Because of those benefits, those tend to be common ages for people to want to retire.
Despite those wishes, the Bureau of Labor Statistics indicates that the workforce participation rate starts falling off around age 55. In addition, the Employee Benefits Research Institute's 2023 retirement confidence survey says the median retirement age is 62.
As a result, it makes sense to plan as if you're retiring earlier than you'd like to. If you reach that earlier date with enough to walk away, then you can either start your retirement that much sooner or keep working with that much less to worry about, financially speaking. That's much better than the alternative outcome of being forced into retiring earlier than you'd like and not having the financial resources to deal with it.
5. Don't ignore inflation
Even at the historical long-term inflation rate of around 3% per year, your money will likely lose more than half of its purchasing power over the course of a 30-year retirement. Even worse, the deeper into your retirement you get, the bigger the impact that inflation will have.
Because of that reality, it is important to keep some money invested in stocks of strong companies and other securities with decent long-term inflation-fighting prospects, even after you've retired. While current income and cash flow is critically important for retirees living off their portfolios, neglecting long-term growth could leave you coming up short when you're least able to go back to work.
Get started now
You will never have more time before you retire than you do right now. That makes today the absolute best time to start to strengthen your retirement planning journey. So now that you know key things not to do, you should have a better foundation on what a great plan could deliver for you. Get started now, and give yourself your best possible chance at a financially comfortable future.
