One of the big financial milestones many of us are interested in reaching is retirement. Each person’s concept of a good retirement differs according to his or her individual goals and situation. In some cases, “retirement” is more of a semi-retirement. In other cases, it truly is a time to just sit around and relax. Whether your retirement is active or passive, though, there are some things you could be doing right now to ruin your retirement:
- Photo: Mait Jüriado
Assuming You’re Putting in “Enough”
Chances are that $100 a month isn’t going to cut it — unless you have very low expectations for retirement, or you end up with amazing returns. Don’t just assume that what you are putting in right now is enough to get you through retirement. Sit down and run some numbers. Consider your monthly expenses during retirement; you can use your current expenses as a guide. Figure out how much you will need, and then estimate whether or not income from government benefits, alternative income and your nest egg will suffice. Realize, though, that you may not be able to rely as much on government benefits as you would like, especially if you are in the U.S. and thinking about Social Security. A financial planner can help you crunch the numbers and make a plan.
Neglecting a Plan B
Avoid putting all of your retirement eggs in one basket. You want to make sure that you have more than one plan for retirement. This might mean recognizing that you will have to work part-time after you retire, or it might mean that you work a couple years longer than you expected to. Also, consider your income diversity during retirement. If the market crashes just before you retire, you may have to rely on other sources of income until your portfolio recovers. Consider your options now, and make alternate plans.
Running Up Debt
One of the surest ways to ruin your retirement is to run up a hefty amount of debt. One of the best things you can do for your retirement is to have as few obligations as possible. This includes paying off your mortgage by the time you retire. If you have too many of your resources going toward paying down debt, you will not be able to retire successfully.
Relying on Your Home Equity
The recent real estate crash illustrated the fact that home prices do not always rise. If you are relying on your home equity to fund your retirement, you might be in for a nasty surprise. Whether you want a reverse mortgage, or plan to sell and downsize, you could get a shock when you find that you aren’t getting what you thought. Paying off your mortgage can provide you with a place to live and few obligations for your money during retirement, but don’t base your financial situation on what you think your house will be worth.
Leaving Money on the Table
We hear about this all the time. If your employer offers a matching contribution, you should take it. You should also maximize returns by taking advantage of tax advantaged retirement vehicles. This includes the RRSP in Canada and 401ks and IRAs in the U.S. Make sure you are doing what you can to get all you can out of your valuable retirement dollar.
Oh how I wish I had a employer that matched contributions. My friend works for a company that matches up to 6% of his check… It almost makes we want to work there 🙂
One of the most common beliefs people have for their retirement is that they will be able to rely on their home equity to sustain them. When reality sets in, they either don’t want to move, or they want to “downsize” their house and move into a more expensive community, negating the equity gains.
And banks don’t help, trying to lure debt-free seniors or newly retired folks into using their “un-tapped” home equity to go on a nice vacation or buy a boat or RV.
Like you said, best to have a few options for your retirement plan. Reality is sometimes different than the dream.
Good points! With real estate currently on sale in the US, especially in states like CA, MI, AZ, FL, real estate can be a great investment for retirement. If you can buy with positive cash flow, you can invest for long term so appreciation (and mortgage pay-down) can occur while having passive income and tax deductions along the way.
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