Are you ready to make the leap?
Before you do, take action to avoid these retirement
pitfalls. Making intentional choices will prevent your next phase of life from
being stressful, when it should be peaceful. As others have undergone the
transition to retirement before you, you can learn from their mistakes about
how to handle debt and investments along with making sure both you and your
spouse are ready to make this change.
Retiring with large
amounts of debt: It will be difficult to manage your finances in retirement,
if a significant portion is going immediately towards old credit card debt or
unpaid student loans. At least try to make a dent in these before retiring,
especially as these sorts of debt will continue to cost you in interest for
sums of money that may have originally been much smaller.
Purchasing too much
of your company's stock: While part of your 401(k) may allow you to
purchase your company's stock at a lower price, you still want to limit how
much you spend. Because you are already dependent upon the well-being of the
company for your salary, consider only putting 10 percent of your investment
funds toward your company. This will protect you in the future, so that if your
company struggles, the impact on your personal finances will be smaller.
Not diversifying
investments: This relates to the previous pitfall. Regardless of how early
or late you start investing; relying on only a few stocks or mutual funds puts you at
risk. Even though it may seem simpler to manage a basic portfolio, you will
leave yourself vulnerable to market volatility. Instead, ensure your portfolio
is balanced, containing multiple kinds of stocks and various sizes of bonds.
Your finances are not the only area to put in order for
retirement. Take the time to also examine the relational aspect of making this
huge life change.
Not coordinating
retirement goals with your spouse: As you near the time you intend to
retire, it is important to communicate your hopes and plans with your spouse;
making income changes will affect you both. Not every couple is ready – both
financially and emotionally – to retire at the exact same time. Make sure to
discuss how one of you leaving your job will impact the other.
Another aspect of retiring together is looking at how you
will be spending money after retiring. Do you have the same lifestyle
expectations as your spouse? Do you have the same ideas as far as spending on
hobbies or vacations? Answering these questions early will help to ease
conflict and put together a plan that meets both of your needs.
Not making sure your
spouse has access to funds: As you put money aside, you will want to make
sure that either your spouse has power of attorney or holds accounts jointly.
Skipping this step can become a major obstacle if there is an emergency like a
stroke or premature death. Without a name on accounts, your spouse may have to
file a petition to gain access to retirement accounts. Taking the time to
prepare for both you and your spouse will safeguard the money that you worked
hard for.
Alanna Ritchie is a
content writer for Debt.org, where she writes about personal finance and little smart ways to
spend (and save) money. Alanna has an English degree from Rollins College.
