By the time you get to retirement, you want to be in a good place financially. But certain mistakes you make along the way could prevent that from happening. So to that end, you may want to do what you can to avoid these potentially costly blunders.
1. Claiming Social Security too early
You’re allowed to start receiving a monthly benefit from Social Security once you turn 62. However, you’re not entitled to your complete monthly benefit based on your specific wage history until full retirement age (FRA) arrives. FRA is 66, 67, or somewhere in the middle. It depends on your year of birth.
It’s natural to get excited about the idea of being able to collect Social Security as soon as you’re able to. But filing at 62 is a move you might regret later when you’re stuck with a smaller monthly benefit for life. So before you file early, think about whether it’s possible to wait until FRA to sign up.
It may be that you’re not reaching FRA until age 67 and you’re currently 65 and burned out at work. Could taking a less stressful job for a couple of years do the trick of paying the bills so you can hold off on Social Security? If so, that’s something to consider.
2. Delaying IRA/401(k) contributions
Many people put off saving for retirement in their 20s, 30s, and even 40s because they have other financial priorities they’re trying to tackle. But if you wait too long to start saving for retirement, you might end up with a nest egg you’re not so thrilled with.
Let’s imagine you assemble a portfolio of stocks that generates an average annual 8% return, which is a bit below the market’s average. If you contribute $500 a month to that plan between ages 47 and 67, you’ll end up with about $275,000. Starting 10 years earlier, however, gives you about $680,000 to work with. That’s a notable difference.
Rather than put off retirement savings, try to work 401(k) or IRA contributions into your budget. You may, at times, need to turn to the gig economy for extra income to make those contributions happen. But you may be rewarded in the form of a much larger nest egg later on.
3. Not saving aggressively enough
We just saw that saving $500 a month over 30 years could produce a $680,000 nest egg at an average annual 8% return. That return is feasible with a stock-heavy portfolio. But if you play it too safe, you may end up with a lot less money down the line.
Case in point: A conservative portfolio returning an average of 4% a year gives you a nest egg worth about $337,000, assuming 30 years of $500 monthly contributions. That’s not a negligible amount of money, but it doesn’t buy you the same financial freedom as $680,000.
If you’re nervous about the idea of investing in stocks, or you think it’s overly risky, you may want to remind yourself that not putting your savings into stocks opens the door to a different risk — not having enough money as a retiree. That might sway you to change your mindset.
Certain mistakes on the road to retirement could have lasting negative consequences. Do what you can to avoid these regrets so you don’t wind up miserable later in life.