Underestimate the amount that they need to save
One common mistake that people make in regards to their retirement is to underestimate the amount that they need to save. It is estimated that an individual will need 80% of their income per year after retirement. For the first portion of retirement, many of these costs can go towards entertainment or recreation. However, as health declines, much of the cost could be delegated towards healthcare. This includes long-term care, such as a nursing home or a live-in caretaker.
Some individuals believe they can retire early, until they are hit with the all-too-real effects of doing so. Withdrawing from an individual retirement account before a certain checkpoint (which is determined by the complicated laws of the Internal Revenue Service) usually results in higher tax rates. In addition, many of the factors that determine financial stability can change even after retirement. The health of the economy plays a large part in the ability of investment to pay off in the short-term and the long-term. When the economy experiences a recession after one retires, 401(k)’s reflect the economic downturn, leaving one with a fraction of the funds originally expected. This is referred to as sequence risk and occurs when withdrawals are made in a period of negative returns on investment. It is imperative that an individual does not retire too early and reacts quickly if the economy shows signs of a recession.
In order to reach ones retirement goals, one must remain aware of the composition of their wealth and assets. It is a common misconception that debts should be paid off before one begins saving for retirement. In reality, saving for retirement savings should be started as early as possible. Younger workers can take advantage of compounding interest by starting small, and reaping the benefits later in life. No matter what my financial situation, I will avoid drawing from my Individual Retirement Fund early, which will result in withdrawal penalties and a decrease in available funds when I retire.
In retirement, I intend to remain active and busy by engaging myself with the community and my family. I hope that I will remain healthy enough to travel across borders so that I may experience cultures and landscapes other than my own. Novelty is not something that should only belong to the young. In order for my retirement to be comfortable and interesting, I must keep it in mind throughout my entire career. By making smart financial decisions, I will ensure that my retirement is as satisfying and enjoyable as the rest of my life.