Retirement Planning Mistakes To Avoid [For A Happier Retirement]

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Avoiding financial mishaps for a smooth journey towards your dream retirement!

Somethings in life are inevitable. They are as certain as sunrise and taxes, and will happen whether we like it or not. Many of us live in denial, until it eventually hits us – often squarely in our faces! Accepting of what cannot be changed and knowing how to make the best of what you have is what you need to live your life to the fullest and have peace and contentment.

Retirement! Alas, the end of one’s active working life. A transition from an active working life towards a new beginning of financial independence and relaxation. Or is it? Are we actually ready for retirement? Do we have enough money to live the next couple decades? It can be scary, and in a way it’s good to be scared before you reach retirement. Questions is, can we, and how do we truly prepare for this inevitable truth that creeps closer with each passing year? Before we dive in to the how the most important aspect is to understand and avoid mistakes in planning your retirement.

Let’s first understand what a retirement plan itself is. A retirement plan is how you’re going to accumulate the wealth that will help you live, when you are no longer able to work and make money. Now most of you would think, I too have in the past, that a retirement plan is not something you should spend your time nor money on until you’re probably in your late 40’s but this is one of the biggest retirement planning mistakes we make during the course of our lives.

A retirement plan is a contingency for a secure future. So what would be the most crucial retirement planning mistakes to avoid? Now that’s a good question isn’t it? One that we don’t quite often think of. Let’s drill down a list of the biggest retirement planning mistakes to avoid:

1. Not starting early

Are you in this category? I am. In the early years of our lives, retirement is the last thing on our minds, if at all. But, it’s important to change that perspective.

Why? This is due to something called ‘the compounding effect’. I’m sure you’ve heard that term, if you’re in to investing. If you compare starting to set aside a portion of your salary when you’re 25 years old, vs. when you’re 35 (or 40) years old, you don’t have to be a mathematical genius to realize that you’d have a huge advantage by starting to save early. The interest you accumulate is longer as well, giving you extra money on what you save. There are plenty other advantages to starting early, like the ability to invest a little bit aggressively (because you have time to bounce if it goes wrong).

It’s never too early to think, and plan for retirement. I started late too. What matters is you start it.

2. Lack of awareness of your financial situation

Not understanding your financial situation and background is one of the worst retirement mistakes you can do! Always remember there are tons of financial advisers and advisory services out there. The internet is your friend. You can pretty much find anything and everything about all that’s related to finance within minutes to increase your awareness.

But there’s a catch (you knew that, didn’t you?). This doesn’t always mean that you can apply every tactic and strategy out there so that you can get rich quickly. It just doesn’t work like that.

First, you have to be aware of your current financial situation.

Do you have any inheritances? What’s your current cost of living? What about student debt? Do you have to pay any alimonies or child support?

These are just some of the questions you need to answer, to get a more insightful report. If you situation is complicated, getting help from a professional is highly recommended.

3. Not clearly defining your retirement goals

What do you want to do after you retire? Go fishing? Move to Bahamas? Buy a vineyard in France? Go on a cruise around the world?

Whatever it is, clearly define and include it in your retirement goals, along with how you want to spend the rest of your life. Don’t go overboard with this, as you’ll still have to find the money to do it. What’s important is that you set goals for your retired life, before retiring.

4. Not enlisting the help of professionals

Financial matters can get complicated depending on your situation. Just because you and I can access information freely, doesn’t always mean that we can completely take our finances into our hands. It takes a real professional to do it right. There are literally thousands of licensed individuals, who know what they’re doing, and they have served people like you and me for a long time, repeatedly. Besides, there are a lot of paperwork to do in financial matters. Doing them all by yourself is not always recommended unless you really know what you’re doing.

So, who do you think is going to do a better job with your money? You? Or a finance wizard? What say you to you and them? Now that’s a perfect combo!

5. Not diversifying; aka, putting all your eggs in one basket

This is a common retirement mistake, investment mistake even. A lot of people think that retirement funds should follow a conservative investing strategy, and let the money grow gradually in the stock market for a long time. Even though this strategy is proven, it’s important to think about the other factors in this strategy. You’d need to start this way early in your life to actually receive a decent amount at retirement. Also, once the inflation rate and your (ever increasing) medical costs are taken into consideration, it no longer looks lucrative. Besides, one single market movement can (and WILL) wipe out your gains, sometimes along with your money. Are you really going to put all the risk of stock market into all of your money? That’s a big no-no and it is one of the worst retirement mistakes you can make.

You know what they say. Don’t put all of your eggs in one basket. Diversify into other asset classes. Bonds have a very low amount of risk, but also, they don’t offer much yields. So, you’re going to have to balance it out with stocks. A professional would know how to do this. There are also Robot Advisors – online investment accounts similar to online banking, who can automate this based on your preferred risk taking level.

6. Not doing your research

Yes, research! Needless to say it’s highly recommended, especially when it comes to money. You should know how much money you need for you retirement lifestyle. Start with how much you earn now including your monthly pay check and any other income, perhaps from a side hustle. Then look at how much is left after your monthly expenses. How many of those expenses you will still have in retirement? How much money you need every month to live the type of lifestyle you envision? With proper research you should be able to answer these questions.

You don’t have to be an expert on this overnight. But know what is what, and which is which. Ignorance can be expensive. But in the world of finance, it’s a liability. So don’t delay your research.

7. Not reading (and understanding) the fine print

This is the financial world. So, there will be a lot of fine printed words in a lot of places. Especially since there are a lot of paperwork involved in financial matters. What’s new, right? Well, read them all! Know where you’re walking because if not, this can be a dangerous mistake. If you don’t understand them, then ask a professional to explain them to you. Or just google some terms in them, and you’ll find what they say, in your language.

Most importantly, don’t sign any document until you’ve read every single word, and fully comprehend what they say. Some of the things you have to look out for are if you are on a contract, how to exit, what will it cost etc. Financial institutes are not set out to entrap you and steal your money but they are in the business of making money with your money.

8. Acting out on quick impulses

In this world everyone and their dog have stock tips. Everyone knows which stock is going to be the next Amazon. You’re going to come across (and hear) a lot of claims that promise you the sun, the moon and the stars.

Don’t fall for them.  Let me tell you something. All the big parties in the financial world happen behind closed doors. By the time the public gets to know about those parties, it’s already too late.

Just look at what happened with Snapchat stocks. The company was clearly overvalued (by people) and they poured a lot of money into it. But, the next day, the stock fell, and it didn’t recover for a long time.

Instead of chasing the goose that lays the golden egg, lay out a solid strategy in the beginning and stick with it. These are the rules to avoiding investment mistakes in your journey to construct a solid retirement plan.

9. Lack of a clear strategy, or not staying on track

It’ll be easy to get lost with your retirement money if you don’t have a clear plan. It’s called retirement ‘plan’ for a reason. If you don’t have a plan, then you will soon lose track of your money, and it will directly affect to your retirement.

Spend some time looking at your finances to make sure that your plan is going well to help you achieve your retirement goals, while keeping it as a realistic plan.

It’s also important to point that a lot of people get distracted over time, and will stray away from their original plan. I stay on track by automating my investments. When I get my pay check, it goes to my savings and retirement fund. So I’m left with the rest for monthly expenses.

10. Succumbing to the post-retirement spending spike

After the retirement, you’ll get a sense of “I’m finally FREE…” effect, or so I’ve heard from my parents and other retirees. But, just don’t go haywire with your retirement money. Stick with your plan; to the way you wanted to retire. It’s fine to make little tweaks to it, as long as it doesn’t affect the expenses negatively or you can offset that with a different expense. Again, anything that you’d want to do in your retirement, mention it in the beginning, brainstorm your plan so that your plan can be adjusted accordingly.

11. Underestimating medical expenses

A lot of people don’t think about this, or they underestimate it. According to a lot of surveys, most retirement monies are spent on medical expenses and a lot of people have done what we’d call a grave mistake of disregarding this before. Medical expenses are ever increasing. Especially with all these latest discoveries of diseases, preventions, and cures. And not everyone live in Canada. Never underestimate this. Consult your physician to make sure that you’re really taking this factor into account and not missing anything. Most of all just as planning for your retirement ahead of time plan for a healthy lifestyle. Work your way towards being physically fit which will lead to a financially fit life in retirement.

12. Retiring too soon

Retiring early means you’re accessing your retirement fund way before its supposed expected maturity. Even though you won’t be cashing out fully, it will still affect the capital of the fund, and thus its interest. This is the amount you have left to life the rest of your life. Once you retire, finding another job may not be easy or even if you do, it may not pay as much. Consider all this before you retire too soon.

Of course if you have a side hustle going that brings in enough money to retire early, go for it. Otherwise, be cautious so that you don’t fall into any holes along the way.

13. Underestimating the future cost of living

This is one of the top retirement planning mistake some of us don’t even think about. When it comes to the future cost of living, you have to keep two things in mind. The first thing is, due to inflation, the things we can have today will cost more in the future. The second is, due to the ever-developing technology, new products and services will be introduced in the future, and they too will cost money. So, between these two, you will need to account for all the aspects of your current expenses and your future expected expenses.

14. Putting your savings in the wrong places

If the interest or yield is not enough, or if it’s not keeping up with at least the inflation rate, then you need to find another place to keep your funds. There are a lot of investment products that don’t generate much yields. Avoid them at all costs, because they will just waste your (and your funds) time. Also, putting money in places that aren’t insured by a government is not recommended. Especially in the case of retirement funds. Another thing to consider is the risk level of your retirement investment. It should be okay to take an aggressive risk when you are starting in your 20’s and 30’s. Not so in your 50’s. In a case of a flop, there should be enough time for your retirement investment to recover.

By avoiding these top retirement mistakes, you can sleep at night in peace, knowing that you won’t have to worry about your future at all, and focus your energy on being better at your job, and doing what makes you happy.

If you want to start your retirement fund right now, do so with what I use – WealthSimple.