Retirement, like anything else in life is the most successful when you make a plan before it happens. The most common perception of retirees is to see you as financially set and ready to move onto the next big adventure. Having options is great but if you have not planned your finances to support the retirement lifestyle you choose, you have an epic fail on your hands. This may the first time in life you are in control of your own schedule and you have a lot of future ahead, so be prepared.
The most common error made when planning for retirement is to think you have forever to do it. When you’re “twenty-something” it seems like eons away in the distant future. Managing your life now is more of a concern than thinking about what you’ll be doing forty years from now. You can at least get started by participating in a 401(k).
Don’t jump the gun. You may be itching to get onto the golf course rather than making the long commute to your office every morning but you need to be realistic about an early retirement. It means a substantial cut in your pension over what you could have by putting in those few extra years on the work force.
Seeking gratification in the form of taking your profits early will hurt you in the long run. So avoid taking advantage of your home equity through home equity loans or reverse mortgages before you really need to. The same applies to your 401(k) retirement savings – don’t draw down more than 5% annually.
Think twice about spending money on a lot of “stuff” that you really could live without. Remember the difference between a liability and an asset. You want to have far more of the latter than the former. Spend your money on things that create more money.
Don’t fool yourself into thinking that your retirement nest egg will last longer than you. Statistics have shown for the past few decades that people live longer than ever before due to improvements in the quality of health care. The tip here is to spend your money wisely – don’t blow it all in the first few years. Also be realistic about the cost of things such as health care. If you need prolonged medical attention make sure you have money set aside for needs not covered by your insurance.