Connecticut Money: Stay on track when planning for your retirement
This article was published in the New Haven Register on April 23, 2021.
If you are approaching retirement, you may be one of many Americans who are worried about their financial status after they stop working. In a July 2020 survey by SimplyWise, 50 percent of respondents said they were worried they will outlive their savings, and 41 percent worried about paying daily expenses.
One way to boost your confidence is to understand what mistakes people commonly make in retirement planning … and avoid making them yourself. Understanding and sidestepping the following errors will go a long way toward building financial security for your retirement years:
Assuming you will be able to work as long as you’d like. Fully half of today’s retirees had to retire earlier than expected, according to a 2020 survey by TD Ameritrade. Typical causes are health issues, family issues and layoffs. To meet this challenge, you can purchase disability insurance and incorporate early-retirement contingencies into your retirement plan.
Mismanaging your investment portfolio. Many people in their 50s and 60s flee the stock market following downturns, convinced they can’t afford to take a “hit” just before they retire. However, they often simply lock in losses and miss the gains that attend a turnaround. In addition, investors often transfer money from stocks into bonds in a bid for more safety. In reality, your investment allocations should be part of a larger financial plan that is based on your individual situation and focuses on long-term goals.
Ignoring threats to your retirement goals. There are several factors that can pose serious threats to your retirement finances, and a solid financial plan will take each into account. They include inflation, health care costs, family emergencies, taxes and, last but not least, longevity: The longer you live, the more years you will need to stretch out your retirement income.
Failing to pay off debt. Carrying high-cost debt in your 50s and 60s is a mistake, because every dollar you use to pay off past purchases is a dollar that could be building your retirement nest egg by earning interest or investment returns. Make paying down high-cost debt a top priority.
Underfunding your retirement accounts. Max out contributions to retirement accounts such as 401(k)s and IRAs, in order to take advantage of employee matches, compounding interest and favorable tax treatment. Don’t borrow from your retirement accounts unless you can find no alternative: You’ll lose out on investment growth and you could run into problems repaying, especially if you leave your job. Finally, determine whether you’re better off with traditional or Roth (post-tax) accounts.
An experienced financial planner can help in each of these areas. The bottom line: Follow a comprehensive, long-term financial plan that places retirement planning within a larger context of investment planning, tax planning and estate planning.
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