Many people believe that all they need for a successful retirement is earning their nest egg. But that is very far from reality. While having enough money to retire comfortably is important, there's a lot more you need to do to avoid 'failing' at retirement.
Preparing for retirement requires thoughtful planning, and if you're not careful, you'll make mistakes. Here are some of the top retirement mistakes that can lead to a "failed" retirement. Plus how you can avoid them and prepare yourself for a more successful retirement.
Avoid These Retirement Mistakes to Set Yourself up for a Successful Retirement
1. Not Knowing How Much You Need to Retire
Of course, the biggest failure most of us can imagine—and the one retirees worry most about—is running out of money. Figuring out how much to save is one of the keys to a successful retirement. If you aren’t sure how to calculate your retirement needs, consider using the 4% rule as starting point
This rule of thumb states that you can comfortably withdraw 4% of your retirement savings annually for up to 30 years while adjusting for inflation. So if you have, for instance, $1,000,000, you can withdraw $40,000 in the first year. Then in the second year, you adjust the $40,000 for inflation, then withdraw that amount.
2. Focusing Only on the Money
Focusing too much on the money is another common mistake most retirees make. Money is important, no doubt, but it is not the key to a successful retirement. Time is what you have in abundance during your golden years. So instead of focusing on money alone, think about what you'll do with all that time.
Many people find renewed purpose in retirement through volunteering, traveling, and picking up new hobbies. Take time to think and plan out activities that will give you a happy retirement. With retirement mapping, you can figure out an ideal lifestyle that is not boring and unsatisfactory.
3. Neglecting Your Social Life and Relationships
After years of meeting friends through work and seeing them every day, you are suddenly hit with the realization that isolation comes with retirement. As you get into this phase, you might need to rebuild your social life and make new connections.
Here are some tips to help you:
- Meet up with your friends for lunch, grab a coffee or take walks around your neighborhood
- Invite other couples to your house for dinner or board games
- Look out for programs offered by your church or local community center
- Find a group of like-minded people who share an interest in your favorite hobbies. A lot of in person and online meetup groups like these exist.
Try not to make the mistake of neglecting your relationships, as people who maintain deep friendships live longer and function better.
4. Losing Too Much of Your Nest Egg to Taxes
Even if you've set aside a nice sum in savings for your retirement years, you can still lose a big chunk of it to taxes. To avoid this retirement mistake, you need to understand the different types of taxation on your retirement savings account and how to use them wisely.
At Wealth Legacy Institute, we use a model known as the tax control triangle to diversify the taxation on your retirement savings. It is a mix of 3 types of accounts— taxable, tax-free, and tax-deferred. Using this mix strategically can reduce your tax burden and helps you keep more of your hard-earned retirement savings in your pocket.
5. Paying Too Much in Fees
Before choosing a personal financial advisor to work with you on your retirement plan, understand the difference between the types of advisors and how much you'll be paying for their services. Commissions or high management fees paid to your financial advisor can add up quickly. You should always ask about fees before working with an advisor so you have a clear understanding of how they are compensated. So work with a financial planner who is right for you, with a clear fee structure, to set your retirement on the best path.
6. Not Consolidating Accounts
If you’re like most people, you may have lost track of old retirement accounts from different jobs you’ve had in the past. In the financial business, these are known as ‘orphaned accounts’ and they result in lost money for you if you don’t claim them. To avoid this mistake, consolidate all the accounts from your former employers by rolling them over into a single retirement account.
An investment professional such as a financial planner can take care of the leg work for you by helping you track down all the forgotten accounts and completing the necessary paperwork to move them.
If you have lost accounts, we suggest checking out the National Registry of Unclaimed Retirement Benefits. You may be surprised by what is out there!
7. Thinking Retirement Will Magically Solve All Your Problems
Retirement won't make your problems go away. You will still be the same person you were a day before you retired and still have the same worries and weaknesses. Relationships with your partner may require some adjusting through the retirement phase. And if you have been putting off important conversations about your dreams for retirement, now is the time to talk with your family.
The euphoria that kicks in immediately after retirement is fleeting. You still need to stay active, work on your relationships, and live a life of fulfillment and purpose. So make a deliberate plan for retiring and prepare yourself emotionally. Otherwise, it could cost you the happy life you anticipate.
8. Going In With No Plan
What will your life after retirement look like and how will you get there? If you don't know, you risk entering into retirement unprepared for the opportunities your next phase will present. Instead, you should determine what kind of future you look forward to and make a plan to achieve it.
A financial plan helps you manage all the moving parts of retirement, such as Social Security, health care, estate planning, unexpected life hurdles, etc. And you'll need to keep managing your money into retirement as you estimate future expenses and expected income. It's best to seek the advice of a financial advisor such as a Certified Financial Planner to ensure your plan works for you.
The financial investment advisors at Wealth Life Institute can help you create a long-term plan based on your financial and lifestyle goals for retirement. With our essential retirement guide, you'll know what you need to do before retiring to avoid making these biggest retirement mistakes.