It's a good thing to actively plan for retirement rather than just dive in when the time arrives. The more you do to save and research ahead of time, the more financially secure you might be once your career wraps up.
But in the course of planning for retirement, there are certain pitfalls you might fall victim to. So here are three things you definitely do not want to do.
1. Make assumptions about Social Security
You may be aware that Social Security won't replace your pre-retirement wages in full. But you may not realize what little replacement income those monthly benefits give you.
If you earn an average wage, you can expect Social Security to replace about 40% of your pre-retirement income. But if benefits are cut universally, which is a possibility in about 10 years from now, then Social Security will clearly end up paying you even less.
A good bet in the course of your retirement planning is to get an estimate of your monthly Social Security benefit every few years. You can do this by creating an account on the Social Security Administration's website and reviewing your annual earnings statement.
2. Play it safe with your investments
You may be worried about putting your money into the stock market since stocks are known to be risky. But if you aren't willing to invest your nest egg in stocks, you'll take on another risk -- not growing your money the way you want to.
It's natural to be concerned about stock market volatility, but do remember that that risk is mitigated by holding stocks over a long period of time. If you begin saving and investing for retirement in your early 30s with the intent to retire in your late 60s, that's potentially a 35-year window to ride out market downturns and grow wealth.
Of course, as retirement nears, it's a good idea to reallocate some of your assets so you're less heavily invested in stocks. But there's no reason to stay away from stocks in your 30s, 40s, and 50s if you're aiming to retire in your 60s. Quite the contrary since doing so could really end up hurting you financially.
3. Assume you'll be able to retire when you want to
Your plan might be to work into your mid-60s, late 60s, or even your 70s. And working longer definitely has a lot of benefits. There's just one problem, though: You may not get the option to do that.
You never know when life circumstances might force you to exit the workforce at an earlier age than planned. It could be that your company folds when you're 60 years old and you're unable to find a new job in your field. Or, it may be that health issues force you to retire from your job in your late 50s.
For this reason, don't hold off on funding an IRA or 401(k) plan. You might think it's OK to wait until your 40s or even 50s to start focusing on retirement savings. But if you do that, you might end up with a much shorter window to build savings than expected.
Retirement can be a very exciting and fulfilling period of life. But do your best to avoid these mistakes so you can enjoy your retirement to the fullest.
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