When considering life after work, the number one concern for virtually everyone is money. Giving yourself a long enough financial leash to retire requires foresight and discipline, and more importantly, requires you not to make critical errors that could compromise your retirement. Make sure that you do not make these three retirement planning missteps:
Lowballing Your Estimated Retirement Expenses
Retirement should, in theory, be less expensive than your working days, especially if many of those years were spent raising children. Yet retirement should also be fun, which means traveling and all the expenses that go with it. In addition to the fun stuff, you must also account for the things we don’t like to think about, such as illness and other unplanned retirement costs. When planning for retirement, it’s better to overestimate expenses than underestimate them.
Failing To Understand Tax Ramifications When It Is Time To Withdraw Money
Retirement accounts are unique in that they shield you from paying taxes until it comes time to withdraw money. There are strategies from withdrawing funds from your retirement account so that you limit the damage in terms of tax penalties. Get with a financial advisor long before retirement to form a tentative approach to how much you will withdraw from your nest egg throughout your post-work years.
Relying Too Heavily On Social Security
You should certainly take advantage of social security. You’ve likely put your share in throughout your life, and when it comes time to take your cut of the pie, take it!
However, don’t assume social security payments will be there, at least not to the extent that you are promised. The system is already overleveraged, and you never know how an already-taxed social security framework will look years, let alone decades, down the road. Rely primarily on your savings.