Retirement Planning Mistakes to Avoid

On the 45th episode of the Retirement Explained show, I’m talking about the retirement planning mistakes that I want you to avoid! With retirement planning, we most definitely want to make sure we’re measuring twice and cutting once, because if we make mistakes, often there’s no going back!

Setting Improper Goals

It’s important to set good goals when you approach your retirement planning. Merely putting money into a retirement account (like a 401(k) or IRA or Roth) without being strategic isn’t a good idea. Don’t wing it.

Have an idea of how much money you want to spend in retirement. Have an idea of what kind of a lifestyle you want to live after you have the option of not working anymore.

Make sure your goals include things like increased medical expenses later in life and take inflation into consideration.

Having a badly crafted, imprecise goal can cause miscues.

Underestimating Your Time Horizon

It’s important to make sure you don’t underestimate your time horizon. Often people will underestimate how long they’re going to live and one of the nuances of retirement planning is trying to continually hit the moving targets that make up retirement and planning for it.

For instance, if you are of retirement age right now, then when your grandparents were in their 60s, the average lifespan was about 65. Today, the average lifespan is in the low 80s and guess what…when someone in their 30s today is in their 80s, fifty years from now, perhaps the average lifespan is in the 100s.

Don’t Ignore the Impact of Inflation

Not taking inflation into consideration is a common mistake, both with DIY investors and some financial advisors.

Inflation is the amount of increase (or decrease) of the cost of living; milk costs, gasoline costs, etc.

Make sure you take it into consideration and make sure that you’re taking costs for things you’re definitely going to come across that grow faster than the average cost of living; for instance, medical costs grow at 5%/year whereas the average cost of living for all things is closer to 2%.

Incorrectly Judging Investment Risk

This is an important thing to consider. Knowing your comfort level with investment risk is something that is super important and needs to be accurate. Often people overestimate themselves and you want to make sure you’re not overestimating your ability to deal with fluctuations in the market because if you do, you might be taking more risk that you’re comfortable dealing with when markets crash.

Ignoring Foreign Investment Opportunities

It’s easy to only think about American companies when you think about companies that you should be investing in, but it’s important to make sure you’re not ignoring quality companies that are located overseas. Think about Nestle. That’s a large and quality company based in Europe and perhaps it’s something that have a place in your portfolio.