I’m a Financial Planning Expert: 5 Mistakes That Could Prevent You From Retiring Early

Cropped shot of an affectionate young couple going through paperwork while doing their budget at home.
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Many Americans want to retire before their mid-60s, the traditional retirement age. A recent study found that nearly half of Americans under 40 want to retire by age 60.

While it is possible to retire early, it requires proper planning and disciplined saving and investing. But even if you think you have your early retirement plans figured out, you could be making some key mistakes that could derail these plans.

GOBankingRates spoke with Andrew Latham, a certified financial planner and the director of content at SuperMoney.com, about the top mistakes that could prevent you from retiring early. Beware of these missteps if you want to leave the workforce ahead of schedule.

Underestimating the Amount of Savings Required

One of the most common mistakes people make when planning for retirement is underestimating the amount of savings they need for early retirement, Latham said.

“It’s easy to miscalculate how long our savings need to last, especially when retiring significantly earlier than the standard age,” he said. “This misstep could lead to a shortfall in the later years of retirement, creating financial stress during a period meant for relaxation. Instead, individuals should use conservative estimates for returns and lifespan to ensure sufficient savings.”

A common reason why many Americans underestimate how much savings they will need is that they underestimate how long they will live, putting them at grave risk of running out of money in retirement.

Are You Retirement Ready?

“Many people base their calculations on average life expectancies, but these are just averages,” Latham said. “It’s easy to forget that 50% of people live longer than the average. Other errors include not considering the life expectancy of a spouse or not accounting for the steady increases in life expectancy due to advancements in healthcare.”

Not Factoring in Healthcare Expenses

Retirees typically rely on Medicare for all or part of their healthcare coverage, but this does not kick in until age 65.

“Early retirees might leave a job that provides health insurance before they are eligible for Medicare, creating a gap in coverage,” Latham said. “Failing to budget for this can cause unexpected financial burdens. To avoid this, early retirees should research their health insurance options and include this expense in their retirement budget.”

Failing To Account for Lifestyle Changes

Being retired means having more free time, and you might be spending more money than you were while you were working to fill those hours.

“Many people underestimate the cost of hobbies, travel and leisure activities that fill their time,” Latham said. “To avoid this pitfall, future retirees should create a realistic retirement budget that includes these often overlooked expenses.”

Forgetting To Take Taxes Into Consideration

Accounting for taxes is an essential part of retirement planning, but it can be overlooked.

“Withdrawals from tax-deferred retirement accounts can bump a retiree into a higher tax bracket, resulting in a larger tax bill,” Latham said. “To mitigate this, consider diversifying the types of retirement accounts used for savings — Roth, traditional, taxable — to allow for flexibility in managing taxable income in retirement.”

Are You Retirement Ready?

Failing To Account for Inflation

Inflation is another factor that can take an unanticipated bite into your retirement savings, especially when you’re planning for a lengthy retirement.

“Even a low inflation rate can erode purchasing power over time, significantly affecting the longevity of retirement funds,” Latham said. “To counter this, it’s important to factor inflation into retirement savings goals and investment strategies.”

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