Make one or two mistakes in handling your retirement money, and you could be paying a stiff penalty later in your life. The stock market goes up and down, but you’ll survive if you stay clear of these common mistakes:
- Obsessing about market losses: Focus instead on your long-term needs. Catastrophic events and long-term health care needs cause as much damage when you’re caught unaware as does a shaky stock market. Will your nest egg be able to handle the costs of long-term care?
- Forgetting about inflation and taxes: Your retirement savings is a lot smaller than you think when you start factoring in the rate of inflation and the taxes you’ll have to pay when you start drawing out of it.
- Indulging instead of saving during your last years before retirement: Just because you’ve got a handful of years left before you retire doesn’t mean you should go ahead and buy that brand new car. Some people are able to build up almost a third of their savings in the last five years before retirement because they get serious about saving and investing.
- Thinking you can withdraw more than you really can: If you rely on average annual returns on your investments to determine just how much you can withdraw, you could be drawing down your retirement fund faster than you should. Average returns are seldom steady. A safe rule of thumb: Count on a 3 percent rate of withdrawal.
- Not expecting to live a long life: Despite the rise in life expectancy, people still seriously underestimate how long they’ll live. If you’re not thinking about longevity, you could tap out your savings much faster than you should.
