5 Major Retirement Planning Mistakes
Baby boomers have already faced many retirement challenges before being crushed by the recent stock market unpredictability. There are increased chances of another recession to hit the national economy which will potentially turn the situation even worse. Baby boomers will have to keep a count of every dollar they earn and spend, and prepare for the future. Here are five retirement planning pitfalls for seniors to avoid:
1. Only Investing in “Fixed Investments”
Due to the recent market crash, many baby boomers are interested in investing all of their stocks into fixed investments. But many people make the mistake of thinking that “fixed” translates to “fail safe”, when in reality they're just as exposed to the volatile market.
2. Ending 401K Contributions
Thinking of putting an end to your 401K contributions? A recent survey reported that the investors who retained their accounts during the recent market crash earned the maximum average account balances. This means the investors who retained the equity allocations, and also sustained contributions towards their 401K plans, have been able to recoup their money. The best way is to allocate your assets between bonds and stocks in a combination that is most suitable for you.
3. Taking Social Security Benefits Early
Taking early Social Security benefits results in lowest possible benefits. Social security is the best retirement benefit for baby boomers, because you receive a monthly benefit for the rest of your life regardless of stock market downturns. Social security benefits also provide great security from three major risks; inflation, market risks and longevity. Some people have also started early on Social Security benefits because they did not have enough savings or were laid off. One strategy to overcome this issue is to work part-time and delay drawing the benefits.
4. Drawing Retirement Savings Quickly
Upon retirement, many people start using money from their 401K investments to meet their financial needs. They don’t realize that they this money should last in their accounts for the next 20 or maybe more years to come. According to a survey carried out by the Society of Actuarial Sciences, 36% of retirees withdraw savings with no sufficient planning, 24% withdraw for emergency reasons and 10% withdraw to make major purchases. Adding them all up, one can simply say that half of the retirees are withdrawing money very quickly which has adverse effects on the financial portfolio of baby boomers.
5. Insufficient planning
According to a recent survey reported by the (EBRI) Employee Benefit Research Institute, just 42% of Americans have calculated the amount of money they’ll need for life post retirement. A similar percentage of people have relied on plain guessing. An EBRI study revealed that retirees who are aware of how much money they need to actually save up for life post retirement are much more confident of their retirement planning. Sufficient planning will help you to manage your expenses accordingly. EBRI offers a non-profit program which gives you a simple calculator to calculate your savings and expenses.
You should take out some time for financial planning for your life post-retirement. This will not only save you from making fivemajor retirement planning mistakes, but will also give you increased financial security.