Planning for retirement is crucial if you do not want your quality of life to decrease once you stop working. However, it is just as important to ensure your plan is a sound one. Make a mistake during the planning process, and it can cost you dearly later. With that in mind, read on to discover some of the common retirement planning mistakes most financial advisors notice, so that you can avoid them.
The first mistake that a lot of people make is underestimating or overestimating how much money they will need for retirement. When most financial advisors ask their clients how much money they will need to maintain their current lifestyle, most clients simply say: “I don’t know.” Saving without a goal in mind is never ideal. So, how do you arrive at an accurate figure? A general rule of thumb is to figure that you will require around 80 percent of your current annual income when you retire. Of course, everyone is different, which is where expert financial advice comes into play, but this isn’t a bad starting point. After all, if you assume you need a lot less than this, you will only run into financial difficulty later down the line. If you assume you will need a lot more, retiring may simply seem unattainable, which can derail the entire planning process.
Another common error is putting off saving for a later date. When retirement seems so far away, it can be challenging to treat the situation with urgency, but it is important that you do so. The sooner you get started, the easier it will be to reach your retirement goal. In fact, it’s best to save in your 20’s if you have not passed this stage yet. The earlier you save, the more time compound interest has to work its magic, effectively meaning you will need to put less away per month to get the same results if you start earlier.
Another error is failing to use the services of a financial advisor when putting a retirement plan together. Financial services are worth their weight in gold, ensuring you have a plan that is tailored to your situation, is affordable, and can help you to achieve your goals. They can also help you to adapt your plan whenever necessary. After all, expense and income levels fall and risk, as do financial markets, and so it is vital to revisit your retirement plan every few years to take this into consideration.
The final mistake a lot of people make is simply relying on the state-funded pension. With so much speculation regarding the future of the state pensions, you would be much better off setting up your own private pension.
Hopefully, you now have a better understanding of the common mistakes you need to avoid when planning for your retirement. The best place to start is always by hiring reputable financial advisors so that you have someone to help you every step of the way.