1/23/2013 10:30 PM ET|
Retirement errors good savers make
It makes financial sense to put away as much as you can for later years, but don't let that focus keep you from enjoying your working years.
With so much data pointing out the inadequate savings levels of average Americans, it seems like almost everybody needs to save more for retirement. But it's also possible to take retirement saving too far and ruin your current quality of life in the process. Here are four mistakes that diligent retirement savers should strive to avoid:
Don't become obsessed with retirement guidelines. Many retirement savers are familiar with the 4% safe withdrawal rule. But it's important to remember that while aiming for a fixed number aids planning, you may need to adjust your strategy in retirement. Coming up with a fixed withdrawal percentage the day you retire and then religiously taking an inflation-adjusted amount each year no matter what happens in the markets is too rigid a strategy for most people to adhere to. In addition, a person who strictly adheres to the 4% rule will deem his or her portfolio as falling short whenever expenses exceed 4% of the portfolio balance. This can cause anxiety, even when the portfolio is likely still adequate for supporting the retiree's lifestyle.
Don't sacrifice too much now for tomorrow. While saving too little for retirement can lead to disaster in later years, many savers sacrifice too much today in hopes of a better tomorrow. Remember that today is also important, and take everything in moderation. After all, money is for spending, too.
Don't call it quits too early. If they sacrifice too much, many savers can come to feel burned out. They may end up retiring from their job too early and missing out on peak earning years that may also turn out to be their most satisfying years at work. Some people may even realize, years into retirement, that they need to get back into the game because they underestimated how much money a multidecade retirement requires. Even if finances aren't a problem, some retirees simply miss the social aspects of a work environment. Sure, it's hard to imagine right now, but can you guarantee that you won't miss work after 10 or 20 years or retirement?
Don't start thinking money is all you need after retirement. A healthy retirement is much more than having enough money to live on. Many savers spend far too much time planning and thinking about money. Through their working years, they sacrifice their health for a bit more money. They sacrifice their time and their relationships just to work a few more hours. Family, friends and hobbies are among the things that are as important as money for a comfortable retirement. Don't neglect other areas of your life as you strive to put more cash in the bank.
Most people definitely need to save more, so don't use the advice above an excuse for excessive spending. But if you take saving and planning too far, your retirement may not be all that rosy, either.
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