When life gets hectic and there’s never enough time in the day to get through your task list, do you know what suffers? Your future. When we give all of our attention to the urgent instead of the important, we lose that long-term, big-picture vision we need to create a secure future.
The financial actions you take during your pre-retirement years can either set you up for success or failure. Don’t let the latter happen! Use these crucial years before saying goodbye to your career to set a solid foundation for your much-anticipated golden years, and be sure to avoid these common mistakes.
Not Saving Early Enough
There’s a reason you hear a lot about compound interest—it’s powerful! As you build your savings, the interest you gain earns more interest the longer the money sits there. Therefore, the earlier you start saving, the longer time horizon you have for your savings to compound. A common mistake that pre-retirees make is starting their savings journey much later than they should have. Even if it is just small amounts of money saved early on, the compounding effect will be worth it in the long run.
For example, if you start saving $400 per month at age 25, you would have $1 million saved by age 65 (assuming a 7% annual investment return). If you don’t start until age 35, you’ll have to save around twice as much to reach $1 million by age 65.
Using Retirement Funds To Pay For College
This is a common mistake that pre-retirees make early on, thinking that they will be able to make up for the money taken out of their retirement accounts to pay for their children’s college costs. While it is a great goal to want to pay for your children’s college education, you have to weigh the consequences of what it could do to your retirement.
If you deplete a good chunk of your retirement funds early on, you are just setting yourself up for a different type of financial strain that cannot be financed. Remember, you can always borrow for college, but you can’t borrow for retirement. If you still want to help your kids out, walk them through the process of applying for scholarships, grants, or financial aid, and encourage them to find a part-time job while they are studying.
Investing Too Aggressively At Or Near The Point Of Retirement
Unless you’re planning to work part-time, you don’t earn a paycheck in retirement. Since you have to rely on the investments and savings you’ve accumulated during your working years, the last thing you want is the markets hurting your chances of a comfortable retirement.
When you first start out accumulating your wealth, you have a long time horizon, and most investors have the ability to be more aggressive when beginning to save for retirement. However, as you get closer to retirement, you want to adjust your investment allocations to be less aggressive. Nobody knows what the market is going to do, but we do know that as retirement approaches, you cannot afford a downturn in the market.
Not Having A Plan For Your Retirement Lifestyle
So much of retirement planning is based on numbers. Will you have enough money? How will the market affect my investments? But have you thought about what you want your life to look like once you cross that career finish line?
Free time is a major perk of retirement, but when you go from working full-time to not working at all, it can be a shock to your system. Saying goodbye to your career, your colleagues, and your routines can cause anxiety and depression. But if you plan ahead to fill your time with activities that will fulfill you, you can avoid the negative emotions that can come with this life transition.
Do you want to know what activities result in a fulfilling retirement? A BMO study on retirement planning reveals that retirees who stayed busy and active, pursued independence, and volunteered their time were satisfied with their life. (1) One study of retirees even found that those who volunteered 200 hours a year were less likely to develop high blood pressure. The takeaway here is to be intentional about your time in retirement. Make a list of things you want to do, places you want to go, and people you want to spend time with, and then strategically map out the details so your goals become a reality. It’s easy to lose your identity when you say goodbye to your career, but filling your time and venturing out into new territory will help you build a new identity and give you something to look forward to.
The First Step To Avoiding Mistakes
Planning for retirement is not always a simple process. It involves a lot of decisions to be made today that can drastically impact your future self in retirement. If you’d like to learn more about how you can get on track for your retirement, we at ClearVista Financial would love to help you out. Email me at firstname.lastname@example.org, call 800-491-4508, or click here to book your free introductory meeting.
About ClearVista Financial
ClearVista Financial is a faith-based independent financial services firm providing financial planning and retirement planning to pre-retirees and 401(k) plan participants. Founded by Mark Trice, ClearVista strives to help people find financial balance in their lives and spend their lives well. As a Certified Kingdom Advisor (CKA®) advisor, Mark provides professional guidance while also incorporating biblically-based financial management truths into ClearVista’s financial advisory practice. ClearVista Financial has offices in Austin, Brownwood, Temple, Houston, and Waco, Texas. Along with serving clients in Texas, the team also works with individuals in Arizona, California, Colorado, Missouri, West Virginia, and Virginia. To learn more, visit www.clearvistafinancial.com or connect with us on LinkedIn.