Approaching retirement can feel like a milestone moment — the end ofa successful career and the start of a new phase of life. But someretirees look back on their years in the workforce with regret over theirfinancial decisions (or lack thereof). From misguided investments to notplanning for health care costs, there are several common mistakes you'llwant to avoid when planning for retirement. Read on to learn how toensure your post-career life is one of joy and contentment rather thanfrustration.
Getting a late start at retirement saving
Waiting until later in life to begin saving makes it tough to sock awayenough money for a comfortable retirement.
When you start saving for retirement early, you benefit from the powerof compounding. Compounding occurs when the returns on aninvestment are reinvested and generate additional earnings, which arethen reinvested again. Over time, this snowball effect can grow aportfolio that's much larger than it otherwise would have been.
For example, say you start investing $200 per month at the age of 25.Assuming a 6% return compounded annually, by the time you turn 65,you'll have a nest egg worth $371,429. But if you wait until age 35 andstart saving $300 per month, even with a larger contribution and thesame rate of return, you'll end up just $284,609 by age 65.
Don't let the idea of not having enough money to retire keep you up atnight. No matter where you're at now, you can take steps to increaseyour retirement savings. If you have an employer-sponsored retirementplan, make sure you contribute enough to get the maximum matchingfunds. If you're self-employed, open an IRA, SEP-IRA, or Individual 401(k)and start contributing as much as you can.
Not aligning your portfolio with your age andgoals
Failing to align their investment portfolio with their age and goals is acommon regret for retirees, as it can lead to missing out onopportunities for higher returns.
For example, younger investors decades from retirement can investmore heavily in growth assets like stocks,1 as they have more time torecover from short-term market volatility. Middle-to-late-career investorstend to shift some of their portfolios to bonds. In contrast, people closeto retirement (or already retired) tend to skew more conservative,positioning their portfolios with more bonds, and even cash, so they arewell-diversified and their principal is less at risk.
Of course, the right mix of investments and asset classes depends onyour specific goals and risk tolerance. Work with a qualified financialadvisor to find the right amount of diversification* for you.
Retiring too early
More than one-third (37%) of retirees regret not working longer,2according to a paper published by the National Bureau of EconomicResearch (NBER).
Retiring too early can be a regrettable choice for many reasons. Forstarters, leaving the workforce early means relying on your savings for alonger time. It can also mean missing out on the potential benefits ofcontributing to a 401(k) or other retirement accounts that offer employermatching contributions, which can significantly boost your retirementsavings.
If retiring early also means claiming Social Security benefits before youreach full retirement age, it could mean receiving a lower monthlybenefit than if you had waited.
The Social Security Administration reduces benefits by up to 30 percent3 for those who start collecting beforetheir full retirement age. For example, for people born in 1960 and later — full retirement age is 67 — butyou can start receiving Social Security retirement benefits as early as age 62.4
If retiring early means claiming Social Security benefits before you reachfull retirement age, your benefits may be reduced by up to 30%.
Let's say you were born in 1962 and started claiming Social Security in2024 at age 62. If your monthly benefit at full retirement age wouldhave been $1,000, you'd receive just $700 per month instead.
On the other hand, delaying retirement can increase your monthlybenefit by up to 24%.5 So if your monthly benefit at full retirement agewould have been $1,000 but you waited until age 70 to start claimingbenefits, your monthly benefit would be $1,240.
If retiring early means you need to tap into your retirement accountsearly, you'd also be depleting your accounts more quickly and missingout on years of compounding returns.
Finally, depending on how early you need to tap your retirementaccounts, you may also need to pay a hefty penalty to the IRS. Thefederal tax code levies a 10% penalty on any withdrawals from atraditional IRA or 401(k)6 before you reach age 59½. So if you plan totap your savings in those accounts, you should wait until you're at leastthat age to retire.
Not planning adequately for health care costs
Another common mistake is failing to plan for out-of-pocket healthcarecosts in retirement. The average, healthy 65-year-old couple will spend$662,156 on healthcare costs throughout retirement,7 according to datafrom HealthView Services. That's why it's critical that you factor medicalexpenses into your retirement savings plan.
While Medicare does help cover a portion of retirement medicalexpenses, it doesn't cover all of them. Many new retirees are surprisedto find that they must pay for many common health care costs out ofpocket, including most dental care, eye exams, hearing aids and routine physical exams.8
You can also enroll in a Medicare Advantage Plan or MedicareSupplemental Insurance (Medigap) in retirement to help cover somecosts that regular Medicare doesn't cover. Just keep in mind that thisrequires paying additional premiums.
Not buying long-term care insurance
Another cost not covered by Medicare is long-term care, so manyretirees struggle to pay for these types of expenses.
Long-term care insurance helps cover the costs associated with such needs, including nursing homes, assisted living facilities, and home healthcare.9 Without this kind of insurance, you must pay for these expensesout of pocket — which strain even the most carefully planned retirementbudget and leave less for your surviving spouse or children to inherit.
To avoid this regret, consider purchasing long-term care insurance aspart of your overall financial plan.
Everyone should have the retirement of their dreams, but it doesn'thappen by accident. Proper planning now makes all the difference inyour experience later on, so take control of your future and ensure youtake all the steps necessary for a successful retirement. If you need helpnavigating the process, a Synovus financial advisor can work with you tobuild a retirement plan and create a strategy for your unique situation.
*Diversification does not ensure against loss.
