Couples who work hard all their lives often eagerly look forward to retirement. But working for 30 or more years doesn't guarantee that you will be able to retire comfortably. Here are five common retirement planning errors that generally torpedo your ability to retire.
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1. Too much debt. Having debt is not the kiss of death for your retirement. But high interest debt such as credit card debt could be, especially if you can't figure out how to get out of debt and begin saving for the future. It's extremely difficult to invest for retirement when you are still paying off past purchases.
2. Spend your retirement savings on college. Some couples make it a financial priority to pay for their children's college so that they will not begin their careers with debt. However, when you tap your home equity, stop saving for retirement, or even raid your retirement accounts to pay for your children's college, you may be sacrificing your own retirement security. On top of that, you will be missing a golden opportunity to teach your kids about money. There are a variety of ways to finance college, but you can't take out loans for retirement.
3. No emergency plan. Most of us are completely dependent on the money we receive from a single job. Losing that job can easily exhaust your savings and jeopardize your entire financial plan. It's important to develop an emergency fund and plan before you hit those stormy waters. Consider taking on a second job or developing a side business to diversify your income streams in case a layoff should occur.
4. No long-term investment strategy. Some people change their investment allocation based on the latest financial news. This can be a huge mistake. If you pulled money out of equities when the market tumbled in 2008, you also didn't take advantage of the market recovery that has since occurred. Retirement savers need to accept that there will be fluctuations in mutual fund performance and invest for the long term. The only way to combat this type of emotional investing is to have a well thought out investment plan for retirement income that balances financial needs with emotional demands. Then you need to stick with that investment plan throughout financial storms.
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5. No retirement plan. The most dangerous mistake individuals can make is having no retirement plan. Financial plans are not set in stone and you won't be able to foresee every contingency. But having an approximate roadmap you can follow is better than having no plan.
You can be smart, responsible, and hard-working and still end up without enough resources for a secure retirement. In order to make sure this doesn't happen to you, take the time to put together a plan, track your spending, and don't get into debt if you can help it. Think through your investment strategy and stick to it even when you feel tempted to change it.
Neal Frankle is a certified financial planner and runs Wealth Pilgrim, a personal finance blog that helps people make smart decisions about their money. As a start, he suggests that you strive to understand your credit score range.
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