Five Retirement Planning Mistakes To Avoid

Five Retirement Planning Mistakes To Avoid featured image

Whether your retirement years are still several decades away or are coming up soon, making plans for your post-employment years is essential. There are hundreds of retirement savings tips out there, but how do you know if you’re on track to meet your goals?

Retirement planning mistakes can cost you, which is the last thing you want when you’re about to call it quits on your working days and are looking forward to your golden years.

We don’t want to see you end up in that position, so we’re sharing five of the most common retirement planning mistakes to avoid and helping you make better financial decisions for your future.

1. Lacking A Plan

Deciding what you want your retirement to look like can be complicated, especially if you’re not going to be in that position for quite some time. But to get the most out of your retirement, you need to make a plan.

You may be familiar with SMART goals already – these are specific, measurable, achievable, relevant, and time-bound. Structuring your aims around this can help you to focus on what’s most important to you and the plans you want for retirement. So with that in mind, what do you need to do to avoid common retirement saving mistakes?

Factoring in healthcare in your later years is one of the most crucial parts to consider when you’re working out how much you’ll need to retire. Services like care homes, in-home support and other medical needs aren’t covered by Medicare and can become expensive very quickly. Set aside some funds that can be used for these expenses if needed.

Similarly, you should also look into what state or social-provided funds and resources you may have access to once you retire. From there, you can estimate how much you’ll need to supplement with your own money in order to live the lifestyle that you’re after.

And speaking of lifestyle, that’s something else that you need to think about. What exactly do you want your retirement years to look like? Maybe you want to travel, open a business, or even go back into education. Whatever your big dreams are, you need to have a plan in place for funding them.

Another important part of planning for retirement is putting together an estate plan. While this doesn’t always benefit you directly, it’s a vital step to take to ensure that your assets and wealth are passed onto your loved ones after you die. Working with a financial planner can help to maximize your investments now, all while having the peace of mind that, once you pass away, your family will be cared for.

Not only that, but a wealth management professional, like those at First National Bank and Trust, means that you benefit from expert knowledge about the investment market and can make any changes to your plan as you near your retirement years.

2. Making Investment Errors

After years of paying into a work 401(k) plan or an IRA, you may think that your retirement savings are all set. But fewer than 20% of Americans have access to defined benefit plans, which leaves your money exposed to the risks of the global investment market.

We’ve all seen how quickly the market can shift, and any kind of crisis or global catastrophe (like a pandemic) can quickly see your retirement funds losing value. Not only that, but if you’re managing your own stocks, bonds, or even real estate assets, placing bets on the wrong investments can also mean you’re out of luck.

Investing to build funds for retirement takes a significant amount of care and experience. That’s why it’s best to work with investment management professionals who can point you in the right direction and build a tailored plan that works with your risk comfort and financial goals.

3. Cashing Out Early

Most people know that taking any funds from their 401(k) before the age of 59 comes with a tax penalty, but that hasn’t stopped more than 51% of Americans from dipping into their retirement funds ahead of schedule.

This is one of the biggest retirement planning mistakes to avoid. Not only are you subjecting yourself to a tax penalty for no reason, you’re also removing money from a pot that’s currently benefiting from compound interest. The more money you have in your retirement funds for a longer amount of time, the better off you’ll be when you reach retirement age.

Another mistake that people make when it comes to cashing out early is accepting Social Security payments before they turn 70. Payments typically increase around 8% each year that you don’t claim them, from your retirement until you max out the benefit at age 70.

If you’re able to wait to retire until you reach this age, or you have enough of your own money saved to sustain you until then, you’ll maximize the benefits you’ll be receiving.

4. Leaving Your 401k On The Table

Whenever you can financially afford to, it’s always best to put in an equal amount to what your employer is matching for your 401(k). Contributing less means that you’re leaving money on the table and not taking advantage of the compound interest that this comes with.

You’ll also want to take a look at your company’s 401(k) policies if you’re choosing to leave. Many businesses have vesting policies that require you to be with the company for a set amount of time before you can receive 100% of the benefits. In most cases, this is around three to five years.

Leaving ahead of your 100% fully vested period could mean that you won’t receive all of the funds that you thought you were once you hit retirement. So before you make any big career moves, make sure you know what impact this could have on your retirement funds.

5. Not Taking Advantage of Compound Interest

Compound interest is the golden child when it comes to retirement savings. How it works is simple – the more time you keep putting money into savings and accumulating interest, the faster and larger those savings will grow.

It’s worth starting to save as early as you can and contributing as much to your retirement savings as possible. For many young people, this can be a challenge. When you have more urgent priorities like weddings, starting a family, or traveling the world, saving for retirement seems like a problem for later. But your older self will thank you if you can put a good portion of your earnings away now so that you can reap the rewards when you retire.

Start Planning For Your Retirement

Retirement planning mistakes may seem impossible to avoid, but with the right support and guidance, you can set yourself up for a successful financial future.

Contact the wealth management team at First National Bank and Trust today to start discussing your retirement goals. We’ll help you work out a strategy that fits with your financial situation now, and plans for what your future looks like. Whether you want to open an IRA, put together an estate plan, or simply discuss your current retirement plans, FNBT is here to help.