Even people who put off retirement planning for most of their career will think about the inevitable when they are in their 50s. Retirement is probably only a decade away by then. This is the time when the most pressure is felt to fund a comfortable retirement, even though most people’s earnings are probably at their peak. While you are figuring out a retirement plan, you should also take care to avoid some of the biggest retirement mistakes that many people make. Here are five planning errors that will seriously jeopardize your chances of a comfortable retirement.
Don't get a new 30-year fixed mortgage. Taking out a 30-year fixed loan as you approach retirement is unfortunately quite common. Whether you are buying a new home, refinancing your existing mortgage, or you simply want to take out equity from a home that you own free and clear, getting a 30-year mortgage when you are in your 50s is quite dangerous. If you are 55, for example, do you really want to be making payments until you are 85?
Try not to inflate your lifestyle. It's extremely easy to increase your expenses when you are making more money, but it's not so easy to dial them back once you are used to spending more. Unless you have already accumulated a significant nest egg that will last you a lifetime, inflating your lifestyle will make a comfortable retirement much harder to achieve.
Avoid financial advisers who suggest actively managed funds. There are good financial advisers, but some investment managers will try to steer you to funds that provide higher fees and commissions for them. There are also some actively managed funds that beat their index even after fees are included, but certainly not all of them do. And you need to pay for both of these services. Imagine paying 1 percent of your assets in adviser fees every year, another 1.5 percent on an actively managed fund, and the extra capital gains taxes due for the active trading within the fund. Over the long haul, that extra 2.5 or 3 percent is going to significantly cut into your investment returns. Retirement planning is about increasing your odds of success. It doesn't make sense to use an adviser who recommends actively managed funds unless the fees are eliminated.
Don't start buying individual stocks. It's one thing to continue owning stocks because you've been trading and investing for decades, but it's quite another to start your first ever brokerage account in your 50s. Studies have shown that some older folks start losing their cognitive ability, which is essential to making good financial decisions. And while everyone suffers from this phenomenon to different degrees, you certainly don't want to be left with the constant need to make critical decisions that owning stocks requires at the time when you should be enjoying your retirement without worry.
Don't ignore debt. One of the worst financial developments for retirement savers is the accumulation of debts. Sure, some entrepreneurs turned their access to credit into admirable success. But for most people, the increase in access to credit just meant more debt. While almost everyone wants to maximize their potential to increase their wealth, consider paying off your debt as soon as possible if you want to have control of your finances in retirement.
David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.