5 Pitfalls That Will Set Back Your Retirement

5 Pitfalls That Will Set Back Your Retirement

January 26, 2022

Ah, retirement. Whether it’s 2 years or 20 years out, it’s the day many of us dream for. Waking up in the morning to a calm lake and the sun rising over the horizon. Having the whole family over to splash in the water and teach our grandkids about nature. Booking a trip on whims notice because everyday is a weekend and your schedule is yours to set.

The workplace is ever evolving, and in the past few years we’ve seen changes that may have normally taken a decade to pass. A growing trend amongst many younger adults in the US is the grind to retire early. We’re not talking 65 or 62, a lot of the younger generation wants to create passive income streams and retire in their early 50’s.

So the question becomes, how do we get you there? How can we, as advisors, help set your goals up for success? A lot will depend on your income, savings and lifestyle you want to live in those years of your life, but one thing’s for sure, by preparing for retirement you want to avoid these 5 pitfall that can set you back years on your goals.

Disregarding the Employer Match

When you negotiate your employment offer, you’re probably not only talking about your salary. You’re talking about insurance, PTO, parental leave, and retirement savings. If your employer offers a match, take it. It’s free money that is part of your overall compensation package. Typically, you only need to contribute a small percentage to earn the match, and if that means bringing in lunch 3 times a week rather than going out, we think that’s a small price to pay in the grand scheme of things.

Not Saving Enough

It’s not about what you make, it’s about what you keep. Life is expensive and it can be hard to save. Whether you’re saving for a new house, a growing family, or college down the road, make sure to stow away for retirement as well. Save your year-end bonus, don’t raise your lifestyle just because you got a pay increase, and learn to say no when the money you’re spending isn’t serving the things you value.

Giving Uncle Sam Too Much Money

No, we’re not literally talking about your Uncle Sam, we’re talking about the government. Part of our job as wealth advisors is putting strategies in place that will limit your tax liability at year-end. Are you charitably inclined but still writing out checks to the organizations your care about? Let’s talk about gifting some appreciated stock in your portfolio instead. Little changes like this can add up over time, meeting your other financial goals and ensuring you’re not paying too much money to the government.

Forgetting About Healthcare

Did you know that healthcare costs are the leading cause of bankruptcy in the US amongst the upper middle class?* Furthermore, the number one reason people wait until age 65 to retire is because they need to wait until they’re eligible for Medicare. If you want to retire early, especially in your 50’s, you need to save, save, save for healthcare costs. COBRA will only pay for so long before you’re on your own paying for insurance premiums, deductibles, out of pocket maximums, prescriptions, etc. and unfortunately with an aging population comes more illness and therefore higher cost. For a successful early retirement, this needs to be a top priority.   

Ignoring Inflation

Have you noticed that the price at the grocery store has gone up? What about the HOA fees, your Hulu subscription, and your favorite restaurant? Inflation is the increase in the cost of living. Some years we see relatively low inflation, say 1-2%, and some like last year we see it at 7%. Over time, inflation adds up and your dollar won’t go as far. That’s why when we calculate how much someone needs in order to retire, we always put in an inflation assumption that will account of this rise in costs. When you’re planning for your retirement, remember to account for inflation not only in the years leading up to retirement but in the years after as well.

Planning for retirement can seem like a daunting task. There’s a lot to remember and there are important steps we need to take in order to stay on track. If retirement is on your mind, talk to a trusted wealth advisor to help get you on the right path forward.  

*Source: CNBC

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.