Retirement is the ultimate "goal" for everyone, though the path to retirement is shorter for some than it is for others. Unfortunately, a number of pitfalls exist that serve to derail people from retiring on their own terms or even, in some cases, retiring at all.
With that in mind, we asked three of our top analysts to choose one major retirement mistake people need to stop making today. Here's what they had to say.
Selena Maranjian: One of the biggest mistakes people make when it comes to their retirement involves procrastination -- they simply put off thinking about it and preparing for it. That's a reckless mistake, because leaving your retirement up to chance, or assuming that Social Security will support you is likely to leave you underfunded in your golden years. (The average Social Security benefit for retired workers, after all, was recently $1,294 per month, or a whopping $15,528 a year.)
You need to plan and to save, starting as soon as possible. Each year that you put it off is a year of growth lost. Consider that if you've accumulated $300,000 for retirement by the time you retire at age 65, if you had an extra year for it to grow and it grew at the stock market's long-term average annual rate of 10%, you'd collect an extra $30,000. Each year you delay, the smaller your ultimate nest egg is likely to be.
Start by reading, thinking, and crunching some numbers. Try to estimate how much you'll need to live on in retirement, keeping in mind costs, especially health-related ones, which can be sizable. Then figure out how much you can expect to receive from various income sources, such as Social Security, any pensions or annuities, dividends, and so on. Odds are, you'll be wanting to build a bigger reserve of funds to tap in later years. Do so via tax-advantaged retirement accounts as much as possible. Max out IRA contributions and contribute to a 401(k) account, too, if you can -- at least enough to max out any matching funds your employer offers. Start today and you'll be much better off tomorrow.
Dan Caplinger: One of the biggest mistakes that investors make as they approach retirement is to get too conservative with their portfolios. Even though conventional financial wisdom says that it's smart to reduce your risk level as you get closer to retirement, it's still important to remember that most retirees need to plan for a retirement that will last 20-30 years or longer. That long of a time horizon makes at least some allocation to stocks appropriate.
You don't have to be too aggressive with your retirement portfolio, but especially in the current interest rate environment, it simply won't cut it to rely solely on bonds, bank CDs, and other fixed-income investments that provide little or no income. With bonds, the principal risk that could come from rising interest rates also poses a risk -- and an incentive to diversify into the stock market. Sticking with strong dividend-paying stocks in industries that have stood the test of time can be a great strategy that lets you walk the line between taking on too much risk while still having investments that will grow enough to allow you to outlive your money.
Making sure you have enough cash to cover three to five years' worth of expenses is a great way to ensure that you can survive the down phase of most bear market moves in the stock market. Beyond that, though, choosing investments that can grow and provide income is your best way of ensuring your continued financial security.
Sean Williams: A comfortable retirement isn't as tricky to achieve as you might think. It simply takes discipline and avoiding some of the aforementioned pitfalls. One retirement mistake that I find particularly troublesome is the desire to put the financial well-being of your kids and friends before yourself.
Do I blame people for wanting to ensure their family and friends lead a great life? Not one bit. We all want those we care about to succeed. But, if you don't' have the financial capacity to help those you love out, then you could be doing more harm than good.
You see, your children and friends are more than likely able to take out a loan for whatever it is they want to buy, be it a house, car, or other big ticket item. You, on the other hand, can't take out a loan against your retirement. Your clock is ticking and your greatest ally is time. Removing even a few years' worth of savings to help your kids or friends put a down payment on a house or buy a new car could set your retirement back by years, if not decades, as you lose the ability to compound those "loaned out" dollars.
The lesson here is simple: focus on yourself first and others second if, and only if, you have the financial capacity to comfortably do so.
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