5 Common Retirement Planning Mistakes to Avoid

It’s good that you’re saving for retirement. However, you should keep in mind that retirement planning is not something that’s intuitive. It’s easy to make mistakes with your hard-earned cash as you’re building a nest egg. Those mistakes could cost you dearly in your golden years.

Here are 5 common retirement planning mistakes to avoid.

1. Thinking Bonds Are Always Safe

It’s true that bonds are, historically, less risky than stocks. However that doesn’t mean that bonds are completely without risk.

The conventional wisdom advises you to limit your risk as you get closer to retirement. The idea is that you’re supposed to move your money out of equities (stocks) and into bonds. Bonds offer a modest return but are generally considered safe.

However, you don’t want to put too much money in bonds when you’re saving for retirement. That’s because a significant recession or an economic setback could lead to some defaults (from both corporations and municipalities). That could hurt your retirement income.

Use your retirement calculator to determine how much you can lose in the event that your bond investments go sour. Invest as much as you’re willing to risk in bonds, and no more.

2. Not Purchasing Long-Term Care Insurance

Health care costs are skyrocketing. That is, unfortunately, an evergreen reality.

That’s why you should have long-term care insurance. The Department of Health and Human Services estimates that about 70 percent of people over the age of 65 will need some type of long term care. You’re risking your own health if you don’t have that type of coverage.

3. Not Reallocating When Nearing Retirement

As we’ve seen, it’s a good idea to reallocate your assets as you get closer to retirement. You want to minimize your risk so that you don’t lose your savings in the event of a market crash or correction.

However, many people just put their 401k or IRA accounts on autopilot with index funds and don’t look back. As a result, their investments could perform very well over decades but if the market drops precipitously right before they retire, they stand to lose a lot of money.

Make sure that you’re assuming less risk as you get closer to your golden years.

4. Splurging Now

Some people are so obsessed with the here and now that they forget to tuck money away for later on. That’s a decision that they’ll likely regret when “later on” arrives.

Avoid impulse buying, splurging, and wasting money on items you don’t really need. Instead, build your retirement savings so you have something to live on when you hit 65.

5. Retiring Too Soon

You might think that you can beat the pack and retire a little earlier in life than some of your peers. Think again.

While you might very well have enough for retirement, it’s a good idea to have too much. That way, in bad economic times, you still have a little bit of cushion that you can rely on to sustain your lifestyle.

You want to enjoy a decent lifestyle when you retire. To that end, make sure that you limit the mistakes you make in your retirement planning.