In recent years the vast majority of Americans have learned a very hard lesson, and that is that if they are going to be able to retire on time and in a manner in which that have envisioned, it will be up to them to ensure that it happens. No longer can people simply ride the economic gravy train as they did in the 80’s and 90’s. Unless you are a government worker, there are no more cushy pension plans available. And, for younger people, the prospects for a sturdy government safety net grow dimmer as Social Security and Medicare both teeter on bankruptcy. The rally cry for all Americans has become, “If it is to be, it is up to thee.”
Shouldering more of the responsibility for a secure retirement, Americans need to start proactively planning and managing their retirement finances, and in doing so, take the lessons learned from generations past and apply them in order to avoid making the top retirement planning mistakes.
Mistake #1: Putting Off Until Tomorrow What You Can Do Today
The only two resources we all have in planning for retirement is time and money, and of the two, time is the only known quantity. You need both working for you in order to achieve your retirement goals. While we hope that the money we have available to save for retirement will increase over time, we know that time is a finite resource. The younger you are, the more that time is an asset, however, the older you get, time becomes your enemy. Start a retirement savings account today.
Mistake #2: Not Having Clearly Defined Retirement Goals
If you don’t know where you’re going you’ll wind up taking any road to get there, and that can be a dangerous waste of your most valuable resource – time. More importantly, without a clear and tangible vision of what you want your retirement to look like, it can be difficult to maintain the sense of urgency and motivation to stay with your plan. Think about it, envision it and then determine how much your retirement future is going to cost you. Set your sights and start saving towards your specific target.
Mistake #3: Not Maximizing Your Tax Advantages
When the government established tax qualified retirement plans it did so with the intent of having us shoulder more of the responsibility for our retirement. When they established Individual Retirement Accounts and the 401(k) plan, they, in essence, sought to reduce your tax burden so that you would take the extra dollars and save for your retirement. And, by allowing your earnings to grow tax deferred, they wanted to ensure your money grew fast enough to meet your needs. You need to take every advantage offered to you and maximize your contributions to tax qualified retirement plans. And, if your fortunate enough to max out those contributions, you can use tax deferred annuities to enhance your advantage.
Mistake #4: Not Taking Risks With Your Money
Your retirement time horizon may be long, but the longer out it is, the more you will require based on the diminishing spending power of your money – due to inflation. It is important to have at least a portion of your money working harder as a hedge against inflation. A properly diversified and well-balanced portfolio of growth, income and fixed investments will produce both good returns and general stability over a long period of time.
Mistake #5: Not Creating a Secure and Stable Source of Income That You Cannot Outlive
Nearly 75% of Baby Boomers today lay awake at night fearing that they will outlive their income sources. And, these are the people who earned more money than any prior generation and then rode atop some of the biggest bull markets in history. Many will approach retirement with concerns over the income longevity of their assets. Most will need to keep a good portion of their assets invested in risk-oriented investments to keep them growing. Without some stability and security somewhere in their portfolio, their income could be subject to fluctuations, not to mention the possibility of loss due to adverse market conditions. It is strongly recommended that income generated from growth oriented investments be balanced with a safe, secure and guaranteed income source such as immediate annuities.
With so much at stake for our retirement futures, it’s not enough to avoid mistakes. With continued economic uncertainty, it is vital that more proactive measure be taken to get on and stay on track to a secure retirement. It takes thoughtful planning and vigilant management of the plan.