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5 Common Retirement Money Mistakes and How to Avoid Them

By Paul - July 30, 2014

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Saving for retirement is a tough, long road, and one that doesn’t offer the chance to go back and change the whole game plan. But because it is such a long process, one of the benefits pending retirees have is plenty of opportunities to correct the mistakes they’ve made, provided they catch them in time. If not — well, you could end up making any of these five following mistakes.

Improperly Calculating the Length and Cost of Retirement

It’d be wonderful if we could have access to a crystal ball that’d tell us exactly when we were going to retire, how many years in retirement we’d spend, what — if any — health issues we’d encounter, and how the economy will fare.

Unfortunately, none of us can definitively see what the future has in store for us, which leads to the common mistake of planning as though retirement will be short, sweet and free of surprises. It’d be great if we knew to save precisely $50,000 for five years, as that’d be a very manageable goal. But realistically, seniors should plan on 80% of their pre-retirement income to last them 25 to 30 years. This’ll be a fairly adequate amount that’ll cover inflation, living expenses and supplemental medical costs.

Living Beyond Your Means

We see this a lot with high income earners like doctors and lawyers, where people who make quite a healthy living have the lifestyles to match. They live in large houses in prestigious neighborhoods, drive fancy cars and buy new ones frequently, and are regularly jetting off to luxurious vacations in all corners of the earth. We even see this with non-high income earners, where people spend their paychecks as though not a penny has to go to anywhere else but their own enjoyment.

The big problem with this is employees aren’t going to be able to stay healthy, hale and hearty their entire lives, and work into retirement until they pass away. A small handful will, but the odds are so against your favor, it proves the saying “the house always wins” more right than ever. There’ll come a day when you’ll have to hang up your employee card and take a less hands-on role, and people who live beyond their means will be in for a rude shock.

Thinking Healthcare Will Be Easily Afforded

Basic insurance tends to work in one of two ways: high deductibles and low premiums, or low deductibles and high premiums. There are variations, of course, depending on your insurance plan, regardless of whether it’s home, auto, life or medical insurance. One thing most insurance plans all have in common (other than not being fun to pay) is it can get expensive pretty quickly, and that’s considering only what you pay each month or year, and nothing above and beyond.

However, as much of a headache as health insurance is, it will become even more so when all the incidentals add up. Will your plan cover the cost of an ambulance ride if you slip and fall in your home? What about if you break a limb and want to order a waterproof cast cover so you can continue bathing as before? Who’ll fit the bill for progressive treatments for dementia and Alzheimer’s so you can enjoy better quality of life? These things add up very quickly and can get quite costly, and it’s not always a guarantee that your insurance company will pay for it.

Drawing on Savings Accounts Too Often

Let’s say you’ve avoided all of these aforementioned mistakes so far, and have done a wonderful job with your retirement account. You’ve been putting aside a little bit here and there, calculated roughly how much you’d need for retirement and all the incidentals, and hired an ace accountant who’s making your money grow admirably.

But if your fatal flaw is viewing your retirement account as more of a checking account, and one you can use for “emergencies”, you’re setting yourself up for a rude awakening. Often, seniors think that withdrawing a little bit won’t hurt, especially if they’re at an age that’s already close to retirement (e.g. in their 60s). Think carefully about what you’re using the money for: if it’s anything other than a life-threatening emergency, then chances are, you could probably be better off leaving the money in there.

Doling Out Money to Friends and Family

We all know that one friend or family member who’s incredibly kind and generous, the type who’d give a stranger the shirt off their back. Perhaps you’re even one of them. The world really needs more of these personalities, as it makes living day to day a nicer routine when everyone extends a little bit of kindness to one another.

The key, though, is maintaining this generosity without putting your future and retirement in jeopardy. You’ve worked hard to build up a nest egg that’ll see you through your retirement years, and playing around with it too much can possibly lead to financial hardship down the road. If you’re constantly lending or giving money to family and friends, not only are you enabling their bad habits — they won’t learn to depend financially upon themselves — but who’ll be there to bail you out when you need it? Not the family and friends whom you’ve taught to rely on others for handouts.