If you've ever felt a bit stressed (or overwhelmed, or worried, or downright anxious) about retirement planning, you're definitely not alone. Many studies, like the 2015 Retirement Confidence Survey from the Employee Benefit Research Institute (ERBI), indicate that only 22 percent of workers are very confident about their financial well-being during retirement.
But the news isn't all bad; though retirement worries may keep a quarter of Americans up at night, confidence in retirement readiness is actually on the rise. Since2013
— when confidence levels were bottoming out at all-time-lows — workers' feelings of future security have increased by almost 10 percent. Why? Research indicates that these increased feelings of confidence are largely based on having a retirement savings plan.
In fact, according to the ERBI, there's a strong relation between feeling confident about the future and participation in a retirement plan. While this isn't exactly breaking news — we all know it's important to plan ahead — these numbers underscore the significant role that retirement planning plays in the financial planning and wealth management process. To ease your mind, here are the top 8 retirement planning blunders and, most importantly, how to avoid them.
Mistake #1: Not Having a Retirement Plan
This first blunder may seem like a no-brainer, but research from the Federal Reserve indicates that's all too common. Thirty-one percent of workers don't have any retirement savings; 38 percent of workers say their retirement plan is simply not to retire, but to just keep working. Unfortunately, this isn't realistic. Though we'd all like to assume that we will control when and how we retire from the workforce, a full 60 percent of Americans retire earlier than they'd planned... and a third retired involuntarily, due to health issues, job loss, or the need to care for a dependent.
Mistake #2: Missing Out on Employer 401(k) Matches
Many people approach their employer-sponsored 401(k) retirement savings plan with a "set it and forget it" mentality. It's easy to do, especially if your contributions are deducted automatically from your paychecks, but optimizing that 401(k) can give your retirement planning a boost. One component that's frequently overlooked? Employer matching contributions. Safe Harbor matches are guaranteed and can't be taken away without notice so this is like tax deferred income - not taking the match is like refusing some of your income which isn't smart for your long-term goals.
Many employers will match an employee's contributions to their 401(k) up to a certain percentage. As Premier's retirement plan advisors always say, when you contribute the max to your plan, you're reaping tax benefits and building your savings. If you're not taking advantage of this perk, you're essentially throwing away money that you can put toward your retirement.
Mistake #3: No Long Term Care Planning
No one likes to think about the possibility of no longer being able to take care of themselves, but for a majority, it's a reality at some point. About 70 percent of people age 65 and over need long term care at least once in their lives, and this type of specialized care is not cheap. Though long term care costs vary by region, average costs can easily mount over $100,000 per year. Given that long term care is needed for more than a year in over half of cases, it's essential to build this expense into your retirement plan by including long term care insurance.
Mistake #4: Underestimating Medical Costs
Speaking of care, medical care is a reality in retirement that many overlook, as well. When you're healthy, it's all too easy to imagine that you'll always be healthy. For many retirees, however, the rising costs of healthcare present significant challenges. For today's average couple, retiring at age 65, the average costs of healthcare will reach $285,000 over their retirement.
Another common mistake? Overestimating Medicare benefits. Even with Medicare, out of pocket medical expenses can be staggering; co-pays, deductibles, and the ever-rising costs of prescription drugs can add up to an unpleasant surprise. Incorporating medical costs into your retirement planning is a must.
Mistake #5: Dipping Into Retirement Accounts Early
We understand: Things happen. The car needs a new transmission. The house needs a new roof. Your child got accepted into a pricey private school. You both just really need a vacation. As tempting as it may be to dip into your retirement accounts to pay for these (and many other) expenses, resist the urge to use your savings as a personal piggy bank. For one thing, when you withdraw money with the goal of paying it back later, you're losing out on all the growth that you would have earned. Plus, early withdrawals often come with penalties, both in the form of taxes and fees. Either way, it's not a winning proposition.
Mistake #6: Letting Emotions Drive Investments
When it comes to finances, it's all too easy to get caught up in the moment and react to the financial news you see on TV or read online, whether that news is good or ... not so good. But if you fall into the trap of reacting to a "hot" stock tip, or panicking and dumping shares when the market slumps, you're letting your emotions rule your financial planning. Instead, focus on your long-term plan. Remaining calm, staying the course, and leaving emotions at the door just make more sense.
Mistake #7: Claiming Social Security Too Soon
For many Americans, the best time to claim Social Security is "as soon as I can." While you can start taking disbursements at age 62, claiming this early can cost you thousands of dollars in the long term. If you wait to claim until you hit full retirement age, you'll make up to 30 percent more. If you want until you're 70, your benefit amounts may be as much as 76 percent higher!
Mistake #8: Not Saving Enough
Finally, the biggest mistake of all: Not saving enough. It's easy to underestimate how much you'll need, how long you'll live, how much healthcare will cost, and so on, but with careful planning, you can avoid this blunder. Meet with your trusted retirement planning or wealth advisor to develop a plan that works for your needs, goals, and lifestyle...and then stick to it.