10 Financial Mistakes That Could Cost You Your Retirement

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During my 20s, saving for retirement was a low priority. As a poor student struggling to stay out of debt, it was the furthest thing from my mind. However, things changed along with my financial situation.

Once I paid off my debt, I finally began saving money and took more interest in investing. Now that I’m in my 30s, I’m kicking myself for putting it off.

So, over the last two years, I have taken control of my finances and adopted an aggressive strategy to get my retirement planning on track.

As I learn more about personal finance, I’m also discovering what not to do.

If you are committing any of these 10 financial mistakes, it could cost you your retirement.

1. Failing to Plan

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The biggest mistake you can make is not to plan at all. Many people feel they are already too far behind with all the other financial responsibilities. So, they ignore the problem and continue to put off saving for retirement.

According to this report from the Federal Reserve, nearly 25% of non-retired people have no savings at all. While unpleasant, if you avoid the topic altogether, you are sabotaging your future.

Without a financial plan, you are setting yourself up to fail. And you’ll have nothing to last you through your golden years. Even if you are years behind your peers, you should find a financial advisor to discuss your long-term goals, desired lifestyle, and investment strategies as soon as possible.

2. Quitting Your Job Too Soon

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Another mistake that could cost you thousands of dollars is leaving your job too soon. Many companies offer benefits and vesting options that might be worth sticking around for. If you are close to meeting the requirements, there is no reason to leave free money on the table.

Attempting to retire too early is also unwise if you haven’t built up enough savings. The longer you stay, the more time you have to save, receive employer-sponsored contributions, and preserve your nest egg. However, if you think you are ready to retire early, you can also test the waters before diving into full retirement.

3. Withdrawing Benefits Too Early

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One of the most common financial mistakes people make in retirement is taking their benefits too early. While tempting when times are hard, there are penalties for withdrawing your funds too soon. If you try to access your accounts before age 59 1/2, you’ll have to pay a 10% fee. This is wasted money that undermines your savings efforts.

Regarding Social Security benefits, deferring them might be your best option. Although you are eligible to take benefits at 62, you will receive more if you hold off. The amount will increase every year until you reach age 70. Having other sources of income will maximize your retirement benefits.

4. Poor Tax Planning

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You should also think about future taxation and which tax bracket (pre or post-retirement) will benefit you most. Consider whether paying taxes on the front end is better so withdrawals will be tax-free or after you retire. This will help you choose which investment vehicle is right for you.

5. Not Anticipating Healthcare Costs

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Unfortunately, healthcare costs will be a large portion of your retirement budget. Even if you live a healthy lifestyle, you will incur more bills as you age. According to Fidelity, the average couple that retires at 65 can expect to pay approximately $300,000+ for medical care during retirement.

It could become even more of a burden if you develop a chronic condition or illness. Therefore, you must include healthcare costs in your planning.

6. Having Unrealistic Expectations

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You’ll also need to adjust your budget and have realistic expectations. Unless you are independently wealthy, it will be difficult to maintain the same lifestyle as when you received a salary. You will have to establish a new budget based on your fixed income.

Overspending is another financial mistake that could cost you your retirement. You have to learn to live within your means. Otherwise, you may wind up with no money and plenty of life left to live. If you are withdrawing too much, you could outspend your savings.

7. Being Too Frugal

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On the other side of the coin, you don’t want to live a miserly existence. It’s one thing to be frugal and another to live in fear of spending money. You worked hard for your money and should use it to do what you enjoy. Create a plan with your financial advisor so that you will be comfortable yet still able to afford a good quality of life.

8. Investing Too Conservatively

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In a similar train of thought, you also don’t want to become too conservative with your investment strategy. It’s wise to scale back the risk as you near retirement. But if you become too conservative with your asset allocation, you could miss out on profitable opportunities. Therefore, it’s best to assess your portfolio regularly and rebalance it when necessary.

9. Incurring More Debt

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Retirement is the perfect time to try new hobbies. But you don’t need to buy everything upfront and incur more debt. While getting out of debt when you have a full-time salary, it’s even harder when you retire.

Taking on more debt will erode your savings if you are paying down debt on a fixed income. It becomes nearly impossible to keep up with interest fees and inflation. Accruing more debt could ruin your retirement years.

10. Supporting Younger Family Members

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Lastly, you need to evaluate how many people you are planning for. Supporting adult children and grandchildren isn’t feasible when you only plan for two. It’s hard to watch family members struggle. And if you are in a position to help, it’s only natural to offer whenever possible

However, it also negatively impacts your ability to support yourself. While you might be okay in the short term, it is not sustainable. If you don’t plan to support multiple people from your retirement accounts, all your planning will be for nothing.

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