What would you rather be doing besides planning your retirement? Probably a lot of things, which is likely why this highly important subject of finance often goes neglected. It can be hard to put away money for something that seems so far away, but retirement planning is just as important whether you’re 25 or 55. You should be thinking about your retirement savings strategy and contributing to a fund regularly now.
However, even if you are a diligent saver and are expecting a very comfortable post-career life, know that you may not be in the clear yet. Many people exit the workforce without any clue as to the retirement challenges they’re about to face. If you really want to be ready for the day when you can finally say goodbye to the office, consider the common pitfalls new retirees often deal with so you can be prepared:
Retirement Pitfall #1: Starting Too Late
As mentioned, the further away your retirement age, the harder committing to regular account contributions can be. What many fail to realize is, the younger you are, the better a time it is to get started. It’s much easier to start early than try to catch up later for a number of reasons:
- Less Responsibility: When you’re in your early years, you generally don’t have as many financial obligations as when you’re well into adulthood. Why not start building a solid retirement fund before you have a mortgage, kids and other big expenses to worry about?
- Higher Risk Tolerance: As a young investor, you can take a much more aggressive approach to your portfolio. Higher risk means higher gains, and more years between now and retirement mean extra time to make up for any losses.
- Compounding: Even a simple savings account with compounded interest can turn your deposits into a sizable balance. Compounding interest means your money grows exponentially over time, so the longer it’s invested, the better.
Retirement Pitfall #2: Increased Longevity
As the years pass, people average longer and longer lifespans. The Centers for Disease Control and Prevention reported that typical life expectancy in the U.S. was 77.9 years in 2007, an increase of 1.4 years since 1997.
You may end up living for several more years, or even decades, than you first expected when you opened your retirement account. Not that a long life is a bad thing, but you will have to keep the possibility of outliving your retirement savings in the back of your mind and adjust your strategy as you grow older.
Retirement Pitfall #3: Health Care Expenses
As you age, the amount of money needed for various health care costs will continue to increase. In fact, Fidelity estimates the average retired couple will need $200,000 to cover out-of-pocket medical expenses alone over the course of their lives. However, a serious medical condition could send that number skyrocketing.
Also keep in mind you can’t obtain Medicare until you’re 65, and there are still plenty of costs the program doesn’t cover. When you’re planning for your beach front retirement home and travel destinations, be sure to factor in the cost of just staying healthy, too.
Retirement should be something you look forward to, but that doesn’t mean ignoring the serious side of your golden years. To ensure you have a happy and healthy retirement, be sure to avoid these common pitfalls and keep your plan on track.
