The time to start planning for retirement is long before retirement becomes an immediate issue. And avoiding the pitfalls that trip up many Americans in their pursuit of financially healthy retirement years is essential. A recent Wall Street Journal column by Veronica Dagher posted five such mistakes.
Watch Your IRA Accounts
Don’t be complacent about your 401(k). Many employees who simply have their employer deduct the maximum possible amount to a 401(k) without asking any questions may be missing out on more productive alternatives, according to financial experts. In some instances, the fees charged by an investor’s 401(k) may be excessive. Investing in another alternative, such as a Roth individual retirement account could offer more choices and lower fees. Look at the entire financial picture before making decisions.
Careful Planning
Have a plan. Random decisions on retirement maybe counterproductive. There is the temptation to live in the moment, making decisions “on the fly.” Over the course of the usual working career, that could result in savings that will fall short when the job is done and retirement income has to cover all the bases. Start with small goals, if necessary, such as putting 5 percent of gross income into savings each month, then increase gradually until you are saving 15 percent, and do it within a year if possible. A pattern of constantly shorting the savings cushion seldom can be reversed as retirement looms.
Cut Back Expenditures
Think seriously of scaling back now. Downsizing your home and boosting savings often are two sides of the same coin, the experts suggest. Putting on blinders and delaying such moves until suddenly the 60s are upon you is a sure-fire way to ensure unpleasant surprises when the time comes. Thinking you still have time to reduce spending when retirement is just a few years away may result in too-tight budgets that complicate retirement for too many. As age inevitably takes a toll, you could be unpleasantly surprised to find that illness or other complications end your working days prematurely. Such seemingly small things as eating out less often and reducing optional spending will help you be prepared for living on less.
Consider Who You Are Bank Rolling
Resist the temptation to sacrifice your retirement security to pay for your kids’ college. When the offspring walk off with a diploma, you may find yourselves in the mid-50s. In some instances, the kids go into careers debt-free, but Mom and Pop suddenly find they are facing retirement without an adequate cushion. Although the urge to help the children get a higher education is hard to resist, if it isn’t financially feasible it may mean that those children will be called on to help you make it through retirement. Alternatives are paying only a pre-determined portion of the higher education costs or encouraging your students to get their education at a state or community college, if possible. Look ahead when they are still in public school. Save if you can while children are small to help alleviate the stress when you are suddenly faced with tuition and other costs. Encourage the kind of scholastic achievement that can lead to scholarships and other assistance.
Recognize Your Limitations
Don’t be fooled into thinking you will live forever. The plans you made for retirement can quickly go awry if one of the partners dies before you expected he or she would. Many a widow, particularly if there are still children at home, has been forced to sell the family home and retrench spending to the point of penury. Term life insurance for both partners is the most feasible way to avoid this kind of financial shock. Finding out the hard way that you are under-insured is a double-whammy for a surviving partner mourning a loss. A will should be prepared well before anything but a tragic accident could be expected to take either of the partners. Both spouses should be well informed about family financial realities and decisions should be made, as nearly as possible, well in advance.
Charting a course for something as tenuous as retirement is tricky, but those who are realistically preparing for the eventuality will be least likely to find themselves swamped when it comes.
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