The 5 Mistakes That Can Destroy Your Retirement Plans
If you’re starting to plan for retirement, you’ve got the right idea. But keep in mind retirement isn’t about reaching a magic number in your bank account. Before you spend another dollar, it’s worth taking a step back. Because the truth is, retirement isn’t just about how much money you’ve saved, it’s about the smart choices you make today. One wrong move could mean pushing retirement further away, or worse, never being able to retire at all.
Most people don’t realize they’re making devastating mistakes until it’s too late. In this post, we’ll talk about five of the biggest mistakes people make that can seriously derail retirement plans and what you can do instead to build peace of mind and financial freedom.
Mistake #1: Thinking Money Is Just for Buying Stuff
A lot of people view money as a way to buy things rather than build wealth. It’s really easy to fall into the cycle of equating money with spending. As people earn more, they tend to spend more. A higher salary means you can afford a brand new car or go on that dream vacation, right? Not exactly.
This mindset can leave you living paycheck to paycheck, no matter how much you earn. Thomas J. Stanley, author of The Millionaire Next Door, famously found that many wealthy people live below their means. We’re not saying to deprive yourself or never enjoy the finer things in life. But if every raise or bonus leads to more spending, you’ll always feel like you’re playing catch-up.
What to do instead:
Set a sustainable lifestyle that you can maintain, even if your income dips. Try creating a financial plan that focuses on saving and investing first, then spending what’s left on the things you enjoy.
SEE ALSO: Navigating IRA Choices: Traditional vs. Roth for Your Retirement Plan
Mistake #2: Risk Imbalance in Portfolios
We know investing always comes with risk. But are you taking on too much risk? Or not enough? Too much, and a market downturn could cause panic, and lead to selling at the worst possible time. Too little risk, and your portfolio may not grow enough.
Some people avoid investing altogether and just let their money sit in a checking account. Others delay contributing to their retirement portfolio because the market feels too uncertain. But both of those decisions can hurt your future more than a downturn ever will.
What to do instead:
Build a portfolio (designed with your goals in mind) that you can stick with through the ups and downs. Not too risky, not too conservative. Find a middle ground that feels good. That way, you’re not tempted to jump ship every time the headlines get scary.
Mistake #3: Choosing a Random Retirement Number
“I just need $2 million to retire.” Don’t set an arbitrary retirement goal. For most people, these numbers are just a guess.
It’s important to have a goal amount in mind, but choose that number carefully. Too many people pick a goal number without actually understanding what they’ll need to retire comfortably. The right amount all depends on your lifestyle and retirement goals.
During retirement, do you want to:
● Travel
● Stay close to home
● Support family members
● Hit the open road in an RV
● Move abroad
No matter what your plans are, your retirement savings need to reflect your life, not a random number.
What to do instead:
Picture your actual retirement life. What will your daily routine look like? What will you spend money on each month? Don’t guess, do the math based on your plans. Of course, it’s important to consider unexpected expenses or life events, too. If you’re not sure how to calculate it, talking to a financial planner can help.
Mistake #4: Not Updating Your Investment Portfolio
Your investments should reflect your age and risk tolerance. What worked for you 10, 15, or 20 years ago might not make sense now. You need to make changes to your investment portfolio as it grows. If you’re still taking the same level of risk today as you did when you were younger, you could be exposing yourself to unnecessary losses.
When you’re younger and just starting to invest, it’s okay to take more chances with your money.
If the stock market drops, you’ve got time to wait it out and let things bounce back. People in their 20s and 30s can invest more comfortably in aggressive growth stocks. But as you get older, and especially once you’ve saved up a good amount, you can’t afford to take big hits like that. If your account drops by a lot, it might take years to recover. People closer to retirement age usually have a more conservative portfolio. Smart investors adjust their risk based on their current financial situation and plans, not just their age.
What to do instead:
It’s typically not a good idea to take on more risk than you need to hit your goals. You don’t have to eliminate all risk, but your investment strategy should change with your financial situation.
SEE ALSO: Planning for the Future Together: Retirement Savings Tips for Couples
Mistake #5: Relying Too Heavily on Investment Portfolios Instead of Saving
There are a lot of people who think investment performance is the only path to retirement. The assumption is that if they just pick the right stocks, their portfolio will do the rest of the work for them. Don’t make this mistake. Investing is important, but it’s not everything. Saving is just as important, if not more than, the returns you get from investing.
In your 30s, 40s, and even 50s, the money you save every year plays a huge role in how your retirement fund grows. For example, let’s say you have $1 million saved at age 50 and you’re still contributing $100,000 a year, that’s a 10% annual boost from saving alone.
What to do instead:
Save aggressively and invest wisely. Regular saving is what builds long-term wealth. Make it a habit to invest bonuses, tax refunds, and pay raises. Set up automatic contributions so you don’t have to think about it. The market will go up and down, but your savings can be steady.
Retirement Isn’t About Luck, It’s About Choices
Don’t leave your future up to chance. Avoid common financial traps that catch so many people off guard, and make choices that protect your future.
To recap:
● Don’t overspend on unnecessary items like lavish cars or houses. Build habits that support long-term peace of mind.
● Find the right investment risk for your comfort level, and stick to a strategy.
● Stop guessing your retirement goal. Start planning around your real lifestyle.
● Adjust your portfolio as you get older and your financial life changes.
● Keep saving because it’s never too late to build momentum.
If you can avoid these five mistakes, you’ll potentially set yourself up for a better retirement, and more importantly, peace of mind. Are you just getting started with retirement planning? Learn more about the Most Important Aspects of a Retirement Plan to help get you started.
When Should You Start Planning for Retirement?
Start planning for retirement as soon as possible. The sooner you start, the more time your money has to grow. Some Americans start saving as early as their 20s, while for others, starting that early is impossible. If you haven’t started retirement planning, the best time to start is right now, no matter your age.
The road to building a nest egg can start whenever you’re ready. It’s never too late to start.
Don’t Make These Retirement Planning Errors
You’ve worked hard. The last thing you want to do is derail your dreams for a peaceful retirement. Your retirement is too important to leave to chance. With the right strategy, you can build a future that gives you financial freedom.
At Paces Ferry Wealth Advisors, we help you design a retirement strategy that fits your life, not just a generic template. Our financial advisors and consultants for retirement planning in Atlanta are ready to help.
Schedule a free consultation. Contact Paces Ferry Wealth Advisors today to speak with a wealth advisor in Atlanta, Georgia.
Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.