The statistics regarding retirement savings in America are sobering. According to a report prepared by the National Institute on Retirement Security, three-quarters of Americans fall short of conservative retirement savings targets for their age and income.
In addition, six out of 10 working-age individuals don’t own any retirement account assets, nor are they covered by a defined benefit pension. And among Americans who are between the ages of 55 and 64, 68 percent have retirement savings account balances that are less than the amount of their annual income.
Statistics like these underscore what is probably the biggest mistake many people make when it comes to planning for retirement: not saving enough money. However, let’s assume that you are among the minority of people who are putting aside some money for retirement on a consistent basis.
What are some other mistakes that could derail you from a comfortable retirement financially? Here are five common mistakes that you should try to avoid:
- Not having a big-picture strategy and plan. Achieving a long-term financial goal like retiring comfortably takes strategy and planning. It’s not something that just happens by accident. This planning should start decades before you plan to retire. For example, a big-picture retirement strategy should address such issues as what kinds of retirement savings vehicles you will use, how much money you will contribute to retirement savings each month, how you can minimize the impact of taxes in retirement, and how much money you will ultimately need to retire comfortably at a target age.
- Trading frequently. Many retirement savers attempt to time the market by trying to buy securities when the markets are low and sell them when markets are high. In theory, this is a good idea — the whole idea of successful investing is to buy low and sell high, right? But in practice, timing the market is difficult if not practically impossible to achieve on a consistent basis. Instead, it’s usually better to create an asset allocation strategy that includes adequate diversification to meet your risk tolerance level and achieve your long-term return objectives.
- Carrying too much debt. Retiring with a heavy debt load can be hazardous to retirement financial security. Every dollar that’s devoted to paying down debt in retirement is a dollar that isn’t available to help meet everyday retirement living expenses or pay for things like travel, recreation or hobbies. It’s generally advisable to pay down as much debt before retiring as possible, especially high-interest debt like credit cards. It may also be advantageous to pay off a mortgage before retiring, if possible. The home mortgage is the largest monthly expense for many people, so being mortgage-free can result in a tremendous amount of financial flexibility during retirement.
- Not considering the impact of healthcare costs in retirement. Some people think that Medicare will cover all of their healthcare expenses in retirement. While Medicare is certainly helpful when it comes to paying retiree healthcare expenses, it doesn’t cover everything — far from it. There are monthly premiums and co-pays associated with Medicare that should be factored into the retirement budget. Also, Medicare generally doesn’t cover the costs of long-term care (LTC), while most private health insurance policies only offer limited LTC coverage. For this reason, it might be worth considering long-term care insurance to help cover some of the costs associated with LTC expenses you may incur in retirement.
- Prioritizing colleges savings over retirement savings. Given the rising student loan debt burdens in the U.S., many families are putting a priority on saving money to pay for their children’s college education costs. While this is usually a great idea, it comes with one caveat: Saving for college usually shouldn’t take precedence over saving for retirement. There are many ways to lower college costs and reduce future student loan debt. For example, students can live at home and attend a local community college to keep tuition and room and board costs low. Students can also apply for scholarships and grants that don’t have to be repaid. However, there aren’t any scholarships or grants available to fund your retirement.