There are certain unforced mistakes committed by many of us that can kill our retirement plans and reduce our savings at the end. Read to know what are they and avoid them for a larger nest egg.
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Stacy B Miller On 29th Jun,17
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Pre-retirement blunders: Commit them to break your nest egg

Investing for retirement doesn’t always provide guaranteed return on investments. Do you know why? The reason is most of the baby boomers (would-be retirees) commit certain pre-retirement blunders that blow away the benefits out of their investments.

Luckily, there are ways to prevent that from happening to you.

Worst pre-retirement moves you must always avoid

According to the financial advisers, there are certain financial mistakes that may ruin your financial health after have you retired. Are you one of them who is about to retire in the near future? If so, you should stay away from these pre-retirement mistakes:

Thinking that its too early to start planning for retirement

If you think it is too early to make a move for retirement, then you are wrong. The fact is, the younger you start your journey the sooner you can achieve your goal. Once you make a habit of saving money in your way it will be good for your retirement. For example, start saving 5% of your gross income a month then gradually try to save 15% in a month within a year. You will reap the benefits in future.

These days, most people I know don't have a proper retirement plan. Basically, you won’t be able to continue working till the old age due to health reasons. Hence, it is always a good idea to imagine how your retirement would look like and plan your finances accordingly.

Not giving priority to second opinion

Try to obtain a second opinion from financial advisors to understand the process of retirement planning better. Retirement plans are complicated. The risks are much higher if you stick to just one person's opinion. Here are some of the queries you need to clarify before proceeding any further:

  1. Can I start receiving my social security benefits now or later?
  2. Can I get long term care insurance?
  3. Can I take monthly payments from my pension?
  4. Medigap coverage or self insure. Which one is better?
  5. Do I need to transfer my saving to annuity and by how much?
  6. Which will come first, withdrawal from savings account or the exploit of tax advantages?
  7. How much can I withdraw in a year?
  8. Do I understand the necessary calculation?
  9. Is it advisable to contribute the maximum toward 401(k)?
  10. Why Roth is better?

Saying no to austerity

James Hoffman, Houston-based certified financial planner shared his experience, that a 65 year old couple wanted to retire within 2 years from now. They are yet to start off with cutting down their expenses to boost their savings. This is because they don’t think they might face any emergency before their retirement. It is a big blunder, the advisor said. He explained, that sometimes people don’t have control on situations.

You may face an emergency at any stage of your life. If you're not working on cutting back your costs and are continuing with your present lifestyle, then you may face financial hurdles in future. He warned that the couple may not be able to continue with their work for the upcoming two years due to certain unavoidable circumstances. Apart from that, if you are planning to move or downsize your home to save money, do it now. Spend some money to renovate your home so as to maximize the return at the time of selling it.

Not converting assets to savings

You must have some valuable assets that you often use. For instance, an expensive ring or a gift from your ex husband/wife, a big closet of your grandpa or any other assets that you don't need. Try to sell off those things to boost your savings. This way you can reap the actual benefits of your assets.

Not knowing how much to save for retirement

Do not rely blindly on financial advisers. Your expert has suggested that your saving withdrawal rate should be 3% - 4% in a year. That doesn’t mean it will always work for you. The count is generalized and ofcourse, it can vary depending” on your family history, death, health emergencies etc. So, try to set your game plan and fix your saving withdrawal rate as well as saving rates on a yearly basis. Your own effort and formula can lead to shortage in retirement income.

Being an impulsive spender

At the age of 50s and 60s, people don't have financial burden like equity, child's college debt. They get more space to spend money in an impulsive way. You have two options:

(a) spend a big portion of your income in an expensive manner such as dining out frequently at costly restaurants, going for luxurious trips and indulging in impulsive shopping, and (b) nurture your nest eggs well to have a secure retirement, financially. People who remain focused on saving instead of impulsive spending can lead an enjoyable retirement life.

Using your savings to pay for the kid’s education

As a parent, it will be really satisfying that your child has just finished his/her graduation debt free. On the other hand, it would be quite unfortunate if you don’t have enough savings for your retirement. Many parents are sacrificing their own future to pay for their kids’ education. Lincoln Park, N.J.-based certified financial planner Debra Morrison says, “ it's natural for some parents to feel guilty about not being able to help their kids more, the best gift to their children is to secure their own retirement, so they won't need to lean on their children later on. College-loan programs abound, retirement financial aid does not".

She inspired all parents to choose the process known as ‘middle ground’. Which means paying money for certain things such as books and commuting expenses, school payments. If you teach your kids a lesson that they should find a creative way to earn money to meet their educational expenses, then it will help them in the long run. They will learn how to deal with money efficiently.

Last but not least, do not ignore the power of work. Extend your work-life to get better social, emotional as well as economic benefits. Above all the longer you will work, the lesser will be the chances of shortage of cash during retirement. So, baby boomers should love their job and keep themselves healthy to continue their work for long.

If you’re close to retirement you need to develop a proper plan. Try to give prior importance to pay cut, insurance and debts.

Learn from your mistakes to make sure that you are in the right position to retire.

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