7 Deadly Sins of Retirement Planning, Mistakes You Should Avoid (2024)

Last Updated on 1 year by Antony C.

When it comes to retirement planning, there are a lot of potential mistakes that can be made.

From not saving enough money to not having the right mix of investments, these mistakes can have a major impact on your ability to retire comfortably.

In this article, we’ll take a look at some of the worst mistakes that people make when retirement planning.

Are You Ready To Retire?

Retirement is always a topic that many people try to avoid. Just the thought of planning for retirement gives us headaches.

Facts and figures on how much you need to retire are not that encouraging either.

A study conducted by Economic Policy Institute shows that the average american will retire at age 66 and will live till 79 years old.

On a positive note, with the advance in our medical technology, the average life span will increase to 82 and 85 for men and women respectively. Which means, you will live longer after retirement.

But are you truly prepared for retirement?

A typical couple of age 56 to 61 without any retirement accounts have around $17,000 in savings. This is barely enough to live for just a year after retirement.

On the other hand, a typical couple ages 32 to 61 with a retirement account has a mean of $95,776 in savings. This allows them to enjoy their retirement for at least a few years before it is depleted.

Other studies show that:

Only 5 in 10 individuals have some sort of retirement plan, most are depending on either pension or support from family members.

Even with a pension, the median annual pension amount for Americans who have the old-fashioned defined-benefit plan is only $9,376, according to CNBC.com.

If you want to know how much you need for your retirement, check out our retirement calculator, or read the article on how much do you need to retire in our other articles.

Retirement Planning is long-term planning that we all need to do. Not planning your retirement properly will only cause you to suffer in your old age. Your peers who have a good retirement plan maybe are enjoying themselves at the beach, while those who fail to plan will be forced to work just to pay their bills.

Even in retirement planning, there are a few mistakes that can cost you your retirement dreams.

These worst mistakes in retirement planning are called,

“Seven Deadly Sins of Retirement.”

Learn to avoid these mistakes and make your retirement as comfortable as possible.

A retirement life should be a life you will love to have and enjoy.

Let’s Dive In!

Read Also: How to Create Passive Income With Your Expertise?

7 Worst Mistakes For Retirement Planning

There are many mistakes you need to avoid in order to retire comfortably. But of these hundreds of mistakes, here are the 7 worst mistakes you have to avoid at all costs.

Read Also: How to Create a PersonalizedHome Budget?

1. Underestimating medical expenses

You are healthy and young. You will probably not think about the medical expenses. Some will even term it the “it won’t happen to me” problem. But in reality, you will almost certainly encounter some type of serious health problem if you live long enough.

And these health problems usually come at the age when you are about to retire or when you have retired.

A simple survey done just recently shows that 90.2% of all respondents have no idea of what their future medical expenses will cost. 75.3% said they have no strategy for paying their post-retirement medical cost at all!

This result is shocking and medical expenses are definitely a problem that we will face in the future.

As part of our retirement planning, we should always factor in these unexpected expenses to ensure, our health will be well taken care of.

How to Fix

But first, we need to know how much we actually need.

A report by Fidelity shows that an average person living in a first-world country such as the United States, Australia, Canada, and Singapore will estimate up to $200,000 over the entire post-retirement lifespan.

What You Can Do:

• Buy a supplement health insurance coverage to ensure that your post-retirement medical bills are taken care of.
• Plan for long-term care as well such aslong-term care insurance, or make plan for whom to care for you
• Plan for assisted care provided by a facility, or in-home care service.

Read Also: What are the risk and benefits of investing in Real Estate Index Trust (REITs)?

2. Post-retirement spending spike

Spending spike? It usually comes as a surprise to many people, but our research says, retirees spend more not less. Well, at least for the first few years.

Some term it the “I am free” symptom.

We see all these newborn retires who are finally free from their 9 to 5 jobs and are free to do the things they always wanted. Ranging from traveling the world to golfing in the Maldives (Is there a golf course in the Maldives?).

A few years down the road and when they finally look at their budget, they have spent way too much to last their retirement.

Ouch!

How to Fix

When it comes to spending, the best advice we can give is to make a budget. Like the home budget article, we have written previously. Budgeting for post-retirement spending is just as important.

What You Can Do:

• Set a post-retirement budget
• Track your spending
• Downsizing to what you need
• Keep costs under control

Read Also: 5 Steps Guide to Get Out of Debt

3. Keeping too many cars

Sometimes, keeping a second car make financial sense. It may have better gas mileage, bigger in size so that you can fit the whole family.

But having an extra car that you seldom use can be very bad for your finance as well. It adds up to the cost of your maintenance, taxes, or simply occupying space that can be better used.

How to Fix

If you have a vehicle you don’t really need and is collecting dust. Consider giving it to your grandchildren or charity and take a tax write-off.

This simple act will save you hundreds every month on gas, insurance, and repair costs.

The other option is to rent out your second vehicle which you seldom use. Getting a few hundred dollars per month for renting out your vehicle will definitely help you with your retirement expenses.

For those, who seldom drive, not owning a vehicle and considering using public transportation can also help to save the environment. Some may even consider walking or biking for the added health and fitness benefits.

Read Also: How to make a $50,000 passive income for retirement?

4. Moving House

Moving to an area with a lower expense can be beneficial for retirees to help them retire comfortably. But some moves can lead to unexpected circ*mstances that the retiree will regret in the future.

Scenarios

• There are some retirees who sell their homes and downsized, only to discover that they are paying much higher property taxes in their new but smaller homes.
• Others moved to an area with lower property taxes but higher transportation and food costs, because the new area requires more traveling and fewer shops available.
• Going to live in an area where it is pleasant for couples but lonely for a single person can be quite sad, in the event of the death of the other half.

Perhaps the most common scenario is the inconvenience of moving to an area that you know nothing about. You have to adapt to your old age which leads to your retirement life being less than comfortable.

How to Fix

Proper planning will probably be the best way when getting a comfortable retirement life.

Before choosing the area to move to for retirement, investigate carefully all the different costs or problems you may face. Talk to the retirees who are living there and get to know what is the problem they are facing.

Before choosing where to move to retire. You may want to consider these few factors:

• Accessibility to age-related medical care
• Availability of public transport
• Ease of access to common shops
• Cost of living
• Cost of travel to visit your friends and children
• Availability of a social community for support and social life
• Availability of an economy that allows you to work part-time in case you change your mind
• Availability of a senior service

Discuss with your adult family members before making any big decisions. Pay close attention to the resale value of the house as well. If you are unsure of your plan, you may want to consider a temporary move to your new area while renting out your current home. Should you change your decision in the future, you will still have a place to stay.

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5. Getting sold or scammed

We know most people are honest and nice. But it is always better to be more careful than getting scammed by those who are less honest out there. Some scams may not be as obvious as you may though.

When you are retired, your needs changes. Some of the financial products and services you brought when you are young may no longer make sense.

For example, if you have brought your life insurance for the purpose of replacing lost income for your dependent, you may no longer require it anymore.

Older adults are almost always the target of some untrustworthy individuals who will sell annuities, insurance policies, and investments that may not be the best fit for their customers.

For your record, frauds, and scams aimed at older individuals are on the rise.

How to Fix

Perform an annual review of all your insurance policies to see if they still make financial sense. Consult a reputable financial advisor to help you in the process.

Get a fiduciary financial advisor to help you in the process and not just any other self-proclaimed financial advisor.

A fiduciary financial advisors is to abide by fiduciary duty which is by law, that he or she will have the ethical obligation to act solely in your best interest.

Your financial advisor will help you analyze the risk and benefits of each type of policy you hold and give you advice on which will give you the most benefit.

Be extra careful with anyone who is trying to sell you anything. When the deal sounds too good to be true, it is too good to be true.

Lastly, don’t make any financial decisions under pressure. If you are in doubt, it is your gut feeling telling you ‘No’. Make all financial decisions carefully and slowly.

Read Also: Do you need a Rainyday Fund or Emergency Fund?

6. Putting Savings in the Wrong Place

Savings for retirement is one of the most important decisions that we make during our work life. But putting the saving in the wrong place can be very bad for our retirement planning too.

Inflation eats up 2% to 4% of our savings every year. In other words, your buying power gets smaller and smaller each year.

Example:

An average of a 3% inflation rate over 30 years on your current saving of $100,000 will have a buying power of $41,199. Your buying power has just reduced to less than half due to a 3% inflation rate!

Fear leads most people to put their money in the bank and avoid all other forms of investment that may cause them to lose money. Banks on other hand give an interest rate that is usually much lower than the inflation rate.

In other words, by putting your savings in the bank, you are sure to lose money due to the inflation rate.

How to Fix

A balance of risk and reward might just be the answer to this. The interest rate in bank usually give a low interest rate that will not beat inflation. This lead to saving for retirement a very tough task to do.

When it comes to retirement, diversification might be the best way possible to have the maximum reward and lowest risk.

Financial advisors can help you in this area, to help you plan for your retirement.

But for me, as I like to learn about investing and maintain my own portfolio, I buy a mix of bonds, REITs, and ETFs. You can also read my other article on how I plan to earn $50,000 in passive income for retirement through investing.

Avoid buying individual stocks, if you are planning for retirement, as you will not know what will happen to that particular stock in the future. This holds true even for blue-chip stocks.

“You diversify by spreading your investments over different asset classes, some will go up, others go down, but your portfolio will smooths out the bumps in the market,”

If you are investing on your own, the best way to obtain this balance is to choose low-cost index funds.

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7. Retiring too Soon

According to Social Security data, the average life expectancy is 79 and in the next 5 years, at least one member of a 65-year-old couple to live another 23 years, to age 88. What’s more surprising is thatone-third of all retirees will live to age 92.

This means, if you are retiring at the age of 65 years old, you are expected to have savings to cover 14 to 27 years of retirement.

That is a lot of years of retirement!

Imagine you start working at 25 and stop working at age of 65. You have worked 40 years of your life. And in these 40 years of your work life, you will need to cover your expenses of 14 to 27 years of your non-working life.

That is a lot of money you will require to achieve a comfortable retirement life

How to Fix

Retirement is a time when you want to relax and enjoy, but unless you have no choice because of a health problem or are unable to find work. Plan to keep working as long as possible to maximize your social security benefits.

The increase of benefits and minimizing of your nonworking years can mean a huge difference in your finance at your retirement.

Aim to work till 65 or 70 before you plan to retire unless you have another way to make an income to finance your retirement.

As for me, I choose to perform investment now to build up a passive income to help finance my life when I retire in the future.

Investing in Bonds, REITs or ETF gives dividends periodically and when done properly, it can be made into a passive income to finance our daily expenses.

Read Also: Rich Mindset vs Poor Mindset

My Takeaway

Retirement planning is long-term planning which is as important as home budgeting.When you want to retire comfortably, you want to avoid these few worst retirement planning mistakes.

You have worked hard for most of your life and retirement should be fun and enjoyable. You want to just enjoy the sunlight on the beach with a co*cktail in your hand. Money should be the last thing you should ever worry.

Since we are on the topic of retirement. Here is an article where we talk about preparing for your retirement. Probably you may want to check it out as well.

Read Also: How much do you need to Retire?

If you are interested in retirement numbers, here is a retirement calculator for you to calculate how much you actually need for retirement if you do not create a passive income stream.

Tools: Retirement Calculator

There are definitely many other ways of making passive income for retirement, but those mentioned in this article are some of my favorites!

Read Also: Passive Income vs Active Income

Remember! If you want it badly enough to be financially freed and have control of your own life, you will do what it takes to achieve it!

It will definitely be worth it!

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