How to Avoid Common Retirement Planning Pitfalls

Planning for retirement is the ultimate do-it-yourself project. With the steady decline of employer sponsored defined benefit retirement plans, we now have responsibility for our own retirement futures. Unfortunately, the consequences of bad retirement planning can significantly affect your quality of life during your later years.

Many individuals tend to make these same types of retirement planning mistakes year in and year out. The things that tend to provide problems for people when they reach retirement are not really a mystery, and with a bit of work and focus, most of these mistakes can be eliminated.

Here is some retirement planning advice for avoiding the most common pitfalls.

• Start Saving Now. The most common retirement planning pitfall is almost certainly not saving enough money. While a big portion of this is how much you deposit into your IRA or 401(k) each year, a more significant factor is how early in your life you begin saving and how consistently you do so in subsequent years. The longer your savings can accumulate and compound, the more you’ll have when you retire. If you’re not currently saving for retirement on a regular basis, then begin to do so immediately.
• Invest Appropriately. Another common retirement pitfall is not allowing your retirement funds a great enough opportunity to grow. In investing terms, this is known as a risk/reward payoff. When you’re younger you have time to accept more risk, so you’re more likely to wind up with a larger investment portfolio by the time you retire. If you’re many decades away from retirement, for example, then most of your retirement assets should probably be invested in stocks. But as you get closer to your target retirement age, you’ll probably transition much of your portfolio into safer investment types.
• Time Your Social Security Benefits. Many retirees are so happy to reach retirement age and become eligible for their hard-earned Social Security benefits that they elect to start receiving benefits at the earliest possible age. After all, many figure that it’s great to have anything to supplement their own retirement savings and current income. Unfortunately, by taking Social Security benefits early, a retiree reduces the total amount they’ll receive over the course of their retirement. Try to wait as long as possible (up to the maximum retirement age) before you begin to take Social Security.
• Keep Yourself Healthy. Being overweight or leading an unhealthy lifestyle isn’t just a problem for retirees, of course, but the consequences are often more dire for older individuals. The single biggest expense category for retirees is generally their ongoing health care. Even though the government-sponsored Medicare program does much to improve the health of retirees, there are still many health problems and issues that it does not cover. And private healthcare coverage becomes more expensive each year, greatly outpacing the rate of inflation and rapidly eating into many retirees savings. The only reliable way to reduce this cost is to keep yourself healthy throughout your life.

Even though your retirement may be many decades away, you’ll need to start taking certain steps now to make sure that you set yourself up for the best retirement possible.