Common Financial Mistakes to Avoid in Retirement

Retirement is something most adults spend their working lives dreaming of. But failure to prepare for this period of your life can derail your financial stability. At Alpha Wealth Funds, we aim to educate our clients on how to avoid these pitfalls and ensure a secure retirement. Below, we discuss some of the most common retirement mistakes to avoid as you plan.

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Not Starting Early Enough

Don’t delay your retirement savings. The power of compound interest works best when leveraged over several decades. Put simply, the sooner you start saving, the more you will accumulate over time. 

While there is no golden rule for when you should start saving, experts recommend starting as soon as possible. For example, if you start at 25 and put aside $3,000 a year in a tax-deferred retirement account for 10 years with a 7% annual return, you will have $338,000 at age 65, even if you stop saving after 35. 

That’s the power of compound interest. Just think of how much you could save if you kept investing $3,000 a year from age 25 all the way up until retirement. You’d be set! 

Underestimating Healthcare Costs is a Common Retirement Mistake

No one wants to think about getting sick later in life, but statistically speaking, you are more likely than not to encounter some health challenges come retirement. According to NCOA research, nearly 95% of adults over the age of 60 have at least one chronic medical condition, and over three-fourths are managing two or more.

So how much should you budget for healthcare costs to avoid this common retirement mistake? According to the Fidelity Retiree Health Care Cost Estimate, a single 65-year-old may require $157,500 for medical expenses, and a couple may need double that amount. Needless to say, the time to start planning for these costs is now.

Failing to Diversify Your Investments

The importance of building a diversified portfolio cannot be overstated, especially when planning for retirement. Relying too heavily on one type of investment can be incredibly risky, so it’s a good idea to have a few different tools on your belt. Here are a few investment options you might consider adding to your portfolio: 

• Stocks: Stocks represent ownership in a company. When you buy a stock, you’re essentially purchasing a share of that organization, which entitles you to a portion of its profits and assets. Stockholders can earn money through dividends (periodic profit distributions) and capital gains (selling the stock at a higher price than you purchased it at).
• Bonds: These are debt securities issued by governments or corporations to raise capital. When you buy a bond, you lend money to the issuer in exchange for interest payments and the return of the bond’s face value at maturity. 
• Mutual Funds: Managed by professional portfolio managers, mutual funds pool money from multiple investors into a diversified portfolio of stocks, bonds, and other securities. They aim to diversify and reduce risk and are thus a great option for investors seeking broad market exposure. 
• ETFs (Exchange-Traded Funds): ETFs are similar to mutual funds in that they hold a diversified collection of assets. However, these are traded on stock exchanges like individual stocks, providing greater flexibility in terms of buying and selling. 

By including a mix of these types of investments in your portfolio, you can protect your money and avoid a common retirement mistake. In the event that one vehicle fails, the others will keep you afloat, thereby minimizing risk and putting you in a better place for retirement.

Withdrawing Too Much Too Soon

Withdrawing your retirement funds too quickly can leave you financially vulnerable later in life. It’s a common retirement mistake people make. As such, it’s important to create a sustainable withdrawal strategy for how much and how often you plan to dip into your savings. Experts typically recommend the 4% rule, which states that retirees should withdraw 4% of their savings balance the first year of retirement and pull that same dollar amount each year thereafter, adjusted for inflation. 

Ignoring Inflation is a Common Retirement Mistake

Speaking of inflation, it’s critical to be aware of the ways in which your purchasing power can––and will––change over time. Failing to account for inflation can diminish the power of your dollar, leaving you with less savings than you might have originally planned for. 

To combat inflation in retirement planning, consider investments that offer growth potential, like the Volatility Advantage Fund. This fund employs volatility-based time value investment strategies to help investors maximize their returns. 

Neglecting Estate Planning

Contrary to popular belief, estate planning isn’t just for the wealthy. Whether you own three yachts or a modest family home, be sure to factor in asset management when planning for retirement. This is vital for ensuring your wishes are followed and your loved ones are taken care of after you’re gone. 

Avoid These Common Retirement Mistakes as You Plan

For young people especially, retirement may seem like a distant dream, an abstract concept. But time has a way of creeping up on us, and it’s important to prepare now for the years ahead. By avoiding these common retirement mistakes, you can set yourself up for a great retirement and enjoy that phase of your life with peace of mind.

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Founded in 2010, our services include boutique hedge funds, separately managed accounts, financial planning, estate & trust services, private placements, life insurance and annuities, and in-house concierge services for high-net-worth individuals, families, and businesses. To find out more about our services or reach a registered investment advisor, please fill out the Contact form.

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