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Seven Mistakes That Can Upend Your Retirement

Doug Carey, CFA

Key Points

  • With inflation high and the markets volatile, retiring stress-free is not as easy as it once was.
  • There are a few key mistakes to look out for when planning for your retirement. If you can avoid these mistakes you can help set yourself up for a wonderful retirement free from financial anxiety.
  • With so many moving parts when it comes to a successful retirement, everybody should have a retirement plan in place using retirement planning software like WealthTrace.

Retirement is a time of life that many people look forward to. It's the time when you finally get to relax and enjoy the fruits of your labor. However, for many people, retirement can be a challenging time, especially if they haven't planned adequately for it. In this article, we'll discuss some of the mistakes that can upend retirement and how to avoid them.

Mistake #1: Not Saving Enough

One of the biggest mistakes people make when planning for retirement is not saving enough money. Many people assume that they will be able to rely on Social Security or a pension to cover their expenses in retirement. However, the truth is that these sources of income may not be enough to maintain your standard of living.

Mistakes that can Upend Retirement

Run easy what-if scenarios in WealthTrace on variables like savings to retirement plans.

To avoid this mistake, it's important to start saving for retirement as early as possible and to save as much as you can. You should aim to save at least 15% of your income each year, and more if possible. If you start saving early, you can take advantage of compounding interest, which will help your savings grow over time.

Mistake #2: Underestimating Healthcare Costs

Another mistake people make when planning for retirement is underestimating the cost of healthcare. As we age, we are more likely to experience health problems that require medical care, and those costs can add up quickly. It's important to factor in the cost of healthcare when planning for retirement and to make sure you have adequate health insurance coverage.

One way to avoid this mistake is to consider long-term care insurance. This type of insurance can help cover the cost of nursing home care or in-home care if you need it in the future. Long-term care insurance can be expensive, but it can be worth it if you end up needing it.

Mistake #3: Taking on Too Much Debt

Taking on too much debt can also upend retirement plans. Debt payments can eat into your retirement savings and leave you with less money to cover your expenses. It's important to pay off as much debt as possible before you retire, and to avoid taking on new debt in retirement.

It's important to live within your means and to avoid taking on debt for things you don't really need. You should also make a plan to pay off any existing debt before you retire.

Mistake #4: Ignoring Inflation

Inflation is another factor that can upend retirement plans. Over time, the cost of goods and services tends to increase, and if your retirement income doesn't keep pace with inflation, you may find yourself struggling to make ends meet. It's important to factor in inflation when planning for retirement and to make sure your retirement income will be able to keep up with rising prices.

One way to avoid this mistake is to invest in assets that tend to keep pace with inflation, such as stocks and real estate. It's also important to make sure that any fixed-income investments you have, such as bonds, are inflation-protected.

Mistake #5: Not Diversifying Investments

Another mistake people make when planning for retirement is not diversifying their investments. Putting all of your money into one type of investment or one sector of the economy can be risky. If that investment performs poorly, you could lose a significant amount of your retirement savings. It's important to diversify your investments across different asset classes, such as stocks, bonds, and real estate, to reduce the risk of loss.

Make sure you have a diversified investment portfolio in order to weather recessions and bear markets. Using the WealthTrace Planner you can view your updated asset allocation every day and see if you are overexposed to any one type of investment.

Mistake #6: Withdrawing Too Much Too Soon

When you retire, you will need to start withdrawing money from your retirement accounts to cover your expenses. However, if you withdraw too much too soon, you may run out of money too quickly.

When preparing for retirement it is important to develop a withdrawal strategy. Determine how much you will need to withdraw each year to cover your expenses and how you will adjust your withdrawals for inflation.

Mistake #7: Relying on Social Security Too Much

Social Security provides an important source of income for many retirees. However, it should not be relied on as the sole source of retirement income especially since the Social Security trust fund is now projected to run out in 2034, which could lead to reductions in payments.

Make sure you have other sources of income in retirement. Consider other sources of retirement income, such as a part-time job or investing in dividend paying stocks that can create a steady stream of retirement income. 

Do you know if you are on track for a successful retirement? If you aren’t sure, sign up for a free trial of WealthTrace to get started on your financial and retirement planning.

Do you want free tips on how to retire early? How about retiring stress-free? Learn how to make sure you do not outlive your money by signing up for our free articles.

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Doug Carey, CFA