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Mistakes People Make in Retirement Planning

How much will you need to save for retirement, and what’s the best way to  get it? These are the questions that plague everyone from college grads just starting out, to workers in their 50s and 60s. One of the challenges about retirement planning is that it’s not a one-time decision. As your financial picture and risk tolerance change over the course of your career, your savings strategies should evolve. Be careful not to make these common mistakes along the way.

  1. Not Saving Enough

Of all the mistakes people make in retirement planning, this is probably the riskiest and most common. Part of the reason that many people don’t save enough for retirement is that they’re not sure what constitutes “enough.” Only 42% of Americans surveyed by the Employee Benefit Research Institute for its 2019 Retirement Confidence Survey said that they had tried to calculate how much money they will need for retirement. Only one in three survey participants had tried to calculate what they would need for medical expenses during retirement.

Calculating how much money you’ll need for retirement is a personal process because it depends on many factors. An oft-repeated rule of thumb is to plan on replacing 80% of your paycheck with savings and other sources of income, but that’s not an appropriate goal for everyone. A financial planner who’s familiar with your circumstances can help you identify a target.

  1. Saving Too Much

Again, it’s impossible to know exactly how much you’ll need for retirement – but some people actually overestimate what they’ll need. Because the future is always uncertain, sacrificing quality of life to acquire a huge nest egg isn’t prudent. A better goal is to earn enough for a comfortable retirement while also enjoying the here and now.

  1. Saving in the Wrong Types of Accounts

Where you put your money is one of the most significant factors in determining how much you have by the time you retire. Saving a chunk of retirement money in a savings account that earns just 1% interest, or in a government bond with a rate of return so low that it barely keeps up with inflation, isn’t an effective way to put your money to work.

  1. Getting Too Conservative, Too Early

Starting early and steadily building your portfolio is a more stable path to a comfortable retirement than waiting until the last few years of your career to start stockpiling funds. That said, professionals who are decades away from retirement don’t have to play it too safe. Take some calculated risks while there’s still time to recover from any losses. Putting all your assets in conservative holdings might keep them safe, but it won’t help you grow your wealth.

  1. Being Too Aggressive, For Too Long

Taking chances with your savings is a young person’s game. In the last decade of your working years, keeping your retirement savings in a high-risk stock-heavy portfolio leaves you vulnerable to market shifts that could deplete your life savings. Transition to a diversified portfolio with a mix of stocks, bonds and conservative investments well before you’re ready to retire.

  1. Relying on an Inheritance

An inheritance is a promise but not a guarantee. Say you’re counting on your mother leaving you a hefty sum, but she ends up spending all her assets on nursing-home care during her final years. Or she may live until well after you’ve retired.  You’ll end up without the money you were counting on, and you might be so close to retirement that there’s not enough time to save what you need.

  1. Gifting Too Much

Extreme generosity will make you beloved, but it won’t help you save for retirement. Giving too much money away may derail your own financial plans. It’s easy for a series of relatively small gifts to add-up and eat away at your savings. For example, it might not seem like a big deal to give an unemployed adult child $200 a month to help with rent. Doing that every month for a decade accounts for $24,000 that you could have invested and grown into even more money.

Making large gifts may also eat up more of your assets than you anticipate, if those gifts exceed IRS allowances. The annual gift allowance for 2019 is $15,000 per recipient. A donor (what the IRS calls the gift giver) may transfer up to $15,000 to a donee (the person receiving the gift) without tax consequences. Gifting more than $15,000 to any person in one year requires you to file a gift tax return, and may impact your estate tax bill later on.  If you’d like to start a gifting program, it’s important to talk to an expert first.

Your Retirement Savings Strategy

Your retirement plans are too important to take chances with. Work with the experts to grow your money so it’s there when you need it. Sachetta Callahan takes a holistic approach to wealth management. We help our clients make the right moves at the right times, recognizing that everyone’s financial needs and wants are unique.

How can Sachetta Callahan help you save for retirement? Contact us today.

We’re pleased to announce a growth merger with Wealth Management Advisors, effective January 1, 2022.

Learn more about what to expect.