To most people, just the thought of retirement planning can cause them to feel overwhelmed and unprepared. Here are three common and avoidable mistakes that prevent many people from retiring ‘on time’.
1. Not starting early enough
People often make the mistake of not starting to save early enough, which results in years of foregone compound interest. The sooner you get started, the greater chance you have at reaching your retirement goal. The to key is to make saving for retirement a priority and start contributing to your nest egg as early as possible.
2. Not knowing how much to save in order to maintain your current lifestyle
An important question to ask yourself is ‘how much income do you need to maintain your current lifestyle in retirement?’ The vast majority of people are unsure how much they need, or they have made an inaccurate assumption. If they assumption is too low, the person could run into financial difficulty later in life and make unwanted changes to their lifestyle. If the assumption is too high, the goal of retirement planning may seem unattainable, and the process becomes discouraging. This is why it is important to work with a financial advisor to ensure that the amount you are saving will allow you to maintain your current lifestyle in retirement.
3. Not updating your retirement plan
Changes in financial position are very common at different stages in life. Income levels rise and fall, as do the markets, which is why it is important that your retirement plan be revisited every so often to ensure that you’re taking these changes into account. If your retirement plan was made prior to your first-born child, or an increase in your spouse’s income, the chances are your retirement plan is based on a lifestyle that is no longer relevant to you. It is important that you review your retirement plan every few years to ensure that the amount you’re saving is in line with your current retirement goals.