Will you ease into retirement with plenty of resources, or will you be punching a time clock well after you expected to be out of the workforce? The answer depends on your ability to avoid common roadblocks to successful retirement, such as the seven examples listed below.
1. Lack of Planning – As the old saying goes, "If you don't know where you're going, how will you know when you get there?" Take a few minutes to think about your retirement goals and whether you are on track to pay for them. Blindly contributing to a 401(k) is not enough. Use a retirement calculator to help you calculate your retirement needs.
2. Starting Too Late – If you want to retire at age 67, don't start thinking about it at 65. Start saving early and take advantage of the power of compound interest. A 2014 study by JP Morgan Asset Management compared investors contributing $5,000 per year toward their retirement, one starting at age 25 and another at 35. The later saver accumulated just over $602,000, while the earlier saver salted away over $1.14 million.
3. Not Making Retirement Saving a Priority – If you do make a financial plan, does saving for retirement have the appropriate importance in your plan? It takes discipline not to divert your savings to other needs and wants — everything from fully funding your children's college education to buying a larger home than you really need. Don't look at your retirement funds as discretionary funds, unless you also consider your retirement to be discretionary.
4. Poor Investment Strategy – Generally, it's best to invest for the long run with a balanced portfolio, tilted toward higher risk and growth investment in the early years and toward lower risk as retirement approaches. You can harm your retirement funds by being either too aggressive or too passive, or trying to maximize your funds by overtrading while looking for bargains. Target funds are available that can automatically adjust your investments based on retirement goals that you set. However, be sure to adjust these funds if your plans change.
5. Too Much Debt – An increase in cash and assets does not help if it corresponds to an increase in debt. American's collective debt has topped $12 trillion, triggered in part by greater mortgage debt as a function of the housing boom and bust. Resist the urge to take on larger debt loads just because you now have the salary to afford a higher monthly payment. Circumstances can change rapidly and unpleasantly.
6. Poor Health – Health problems are a double-edged sword when it comes to retirement planning. Not only can health problems in later life soak up an enormous amount of money, but they can also force you to retire and draw Social Security before you reach full retirement age, reducing your benefits.
Plan your Medicare coverage and decide whether you want to pay for benefits beyond Medicare Part A. Make sure that you have sufficient insurance coverage to protect your spouse — but more importantly, take care of your health. Good eating, sleeping, and exercise habits will go a long way toward keeping you out of the doctor's office. Get regular checkups as well. Remember, preventative care is frequently covered under the Affordable Care Act.
7. Expectations Versus Budgets – Do you want to buy a second home in a resort area? Retire to Paris? Travel the world crossing things off your bucket list? If so, you need to estimate your costs realistically and compare them to your savings plan. (You did make one, didn't you?) Don't forget to take inflation into account, and after you do that, add a healthy contingency for unexpected expenses — perhaps double. There's nothing wrong with high expectations, but be realistic about how you can achieve them.
You worked hard all your life, and earned a comfortable and satisfying retirement without financial worries. Steer around these and other retirement roadblocks with care and planning, and you are likely to achieve those retirement goals — without having to work extra years to do so.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.