As you enter your 50s it becomes increasingly important to incorporate retirement planning into the management of your finances. Your 50s and 60s will probably be your highest earning years at a time when expenses associated with raising children and home ownership may be tapering off. It’s crucial to take advantage of the opportunities during this time to shore up your retirement nest egg.
One significant retirement mistake is the failure to assess your current financial situation and understand how much is needed to meet your retirement goals. Many underestimate the amount of money required to cover retirement expenses which may result in delaying retirement. Consider hiring an advisor to do some retirement planning and help you understand your options, how much money is needed, and what trade-offs may be required to meet your goals.
Another common mistake is to move all of your retirement funds into extremely conservative options, as you approach retirement. With the potential of spending 30 to 40 years in retirement, it’s advisable to keep a long term perspective. Consider keeping your short term money in more conservative options and investing your long term money in a well-diversified portfolio that can continue to grow and stay ahead of inflation. As you approach retirement, it’s also important to avoid making emotional decisions in response to short term swings in the stock market. Emotional reactions frequently result in selling low and buying high which can be harmful to your portfolio.
Many in their 50s and 60s have more disposable income than at any other stage of life. Avoid temptation and be very intentional about your spending. Avoid increasing your cost of living with fancy cars and toys or an expensive new house as you approach retirement. Instead, consider using your disposable income to pay down your mortgage or pay off consumer debt to reduce your retirement expenses.
Another common pitfall is spending too much on adult children including your child’s college education. The desire to help your children is natural and admirable but you need to understand what you can afford and how it will impact your long term financial situation. Place a cap on how much you are willing to contribute for college and encourage your kids to consider less expensive options like attending a community college or living at home during their first few years of college. They have a lifetime to pay-off reasonable student loans but you have limited time to replenish your retirement funds.
Finally, a failure to care for your health can be financially devastating. If you are healthy you will probably be more productive and energetic. This can result in improved job performance with more opportunities and higher income. If you are in poor health, you may be forced to retire early, before you are financially ready. You also may face significant medical expenses that could erode your retirement funds.