While we can learn a lot from our own mistakes, we can learn from the mistakes of others, too; this is true in life and true in retirement planning as well. So, according to a Consumer Reports survey of current retirees, here are some common retirement-planning mistakes that we can learn from.
Saving too late:
With compound interest, a person can greatly increase his or her retirement savings simply by saving earlier in life. As such, many retirees regret not saving sooner. For example, a 25-year-old who sets aside $25 every week and receives an average 3% annualized return would have over $100,000 by the time he was 65; if he waited until 35 to start this savings plan, he would only have $63,000 by the age of 65.
Underestimating the cost of retirement:
Certain expenses might go down once a person retires (gas and car maintenance perhaps), but some expenses are likely to go up (most notably medical bills). Also, the cost of being more active and pursuing interests throughout retirement adds up. Traveling, sports, hobbies, and shopping: all these things can lead to costs that aren’t fully covered by a person’s retirement fund.
It’s important to consider all of your possible retirement plans and expenses and estimate an appropriate savings goal. The cost of retirement might be more than you expected, but it’s better to find that out before retiring than after.
Investing too conservatively and not diversifying:
Investing conservatively might be safe, but the historically smaller returns associated with conservative investments can limit your retirement savings just as much as saving too late. A diversified portfolio can increase returns through riskier investments while tempering those risks with safer, more conservative options.
If you haven’t already started saving for retirement, we encourage you to put together a plan and start saving as soon as possible. If you’ve already started saving, be sure to review and assess your plans to make sure you’re on track to reach your retirement goals — and that you’re avoiding the above mistakes.
Have you run into any bumps in the road as you saved for retirement?