If you make any of these money mistakes, you might have to eat ramen noodles when you're old.
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Getting ready for retirement isn't a walk in the park. It's not simple. It's not surprising that many of us make mistakes that can turn retirement dreams into a last-minute panic.
As you get closer to retirement, there are a lot of things to think about, like when to take Social Security, how much to take out of your 401(k), making a spending plan you can stick to, and investing your retirement savings. And, like the butterfly effect, small choices can have big, life-changing effects in the future.
That's why going it alone is a bad idea.
A study by Northwestern Mutual found that 71% of adults in the U.S. say their financial planning could be better. Only 29% of Americans, though, use the services of a financial adviser.
The value of working with a financial adviser depends on the person, but an independent study found that people who work with a financial adviser feel better about their finances and could end up with about 15% more money to spend in retirement.
But who can you trust to tell you what to do? Before, you had to ask a stranger and hope for the best. But that's the past.
There are now free online services that make it easy to find the best financial advisor for you. You fill out a short questionnaire, and then you are matched with up to three local fiduciary financial advisers who are legally required to work in your best interests. The process only takes a few minutes, and in most cases, you can talk to an expert about your retirement right away for free.
You should definitely do it. Here are some of the biggest mistakes people make when they retire, along with tips on how to avoid them.
(Please read the Vanguard white paper "Putting a Value on Your Value: Quantifying Vanguard Advisor's Alpha" carefully to see how it was done.)
1. If you don't plan, you plan to fail.
A stress-free retirement is a happy one. And what do you do to get rid of stress? How? By making a plan.
Do you get in your car, drive around aimlessly, and hope to end up where you want to go when you want to go somewhere you've never been? No. First, you choose your destination. Then you use a map to figure out how to get there the fastest.
A financial plan is like a map that shows you how to get to your retirement goals as quickly as possible. Your plan includes deciding what you will do, where you will do it, how much it will cost, and where the money will come from. But what if you change your mind as you get closer to retirement? It's fine. It's your plan, so you can change it if you want to.
Do you think it's hard to make a plan? It is. There are a lot of things you'll have to think about, like the investments you choose, your income taxes, and when you want to retire. Because of this, if there's ever a time when you could use professional advice, it's now. Hiring a qualified financial planner who is an experienced, expert guide will keep you from getting lost and get you to your destination.
Use this free service to find three qualified financial advisors in your area. It will only take you five minutes.
2. Waiting until tomorrow to start something you should have done yesterday
A recent survey by Bankrate.com found that not saving enough for retirement is the biggest financial mistake people wish they hadn't made. How come Americans don't save enough? Because they put it off, saying things like, "I'll wait until I have more money" or "I'll start when I'm closer to retirement."
The thing is, it will get harder the longer you wait. In other words, it's better to start small and early than to start big and late.
If you're not saving enough for retirement, a financial adviser may be able to help you catch up and figure out how much you'll need to invest to reach your goals. A financial adviser can help you with more than just investing for the future. They can also help you make a budget and pay off debt.
Even though there's no way to know for sure, if a financial adviser can help you make more money, it could make a big difference. Consider this: if you save $500 a month for 40 years and earn an average annual return of 5%, you'll end up with almost $725,000. If you double that return to 10%, you'll have almost $2.7 million when you retire. That's a big change in life.
Again, there's no guarantee that a professional will do a better job than you could. But the point is that little things can change your life in big ways over time.
3. Leaving work too early or too late
If you want to retire soon, you might dream of quitting your job and going on a world trip. But there are a few things you might want to think about before you call it quits. First, you might live longer than you thought, have health problems you didn't expect, or have trouble with money that forces you to cut back.
That doesn't mean you shouldn't retire early, but if you want to, you should run different scenarios to make sure your savings will cover your costs and give you a steady income for life.
The same goes for not leaving work soon enough. If you don't know if your savings will be enough, you might worry and end up working longer than you need to. You'll be much better off if you know what you have and what you'll need. Get rid of your doubts and only work as long as you want to.
If you are getting close to retirement, you should talk to a financial planner to find out when the best time is for you to retire is based on your own situation.
4. Choosing the wrong financial consultant
Hiring a financial adviser is a big step in life, whether it's to build wealth or plan for a comfortable retirement. Unfortunately, not everyone is made the same. If you hire the wrong advisor, you might end up in a worse position than when you started.
When you need help, you should always meet with more than one planner. Before making a decision, you should talk to them, ask them the same kinds of questions, and evaluate their qualifications and advice. Ask how they get paid and how long they've been in business. Take your time. And always work with a fiduciary, which is a financial planner who is legally required to put your needs ahead of your own.
These days, it doesn't have to be hard or frustrating to find a financial adviser you can trust. Start your search with this free tool that will find you up to three qualified financial advisers in less than five minutes. Each adviser has been checked out and is a fiduciary.
Start now if you want to find local advisers who can help you reach your financial goals.
5. Taking too many or too few risks
Risk is kind of strange. If you take too much, you could lose your money. But if you take too little, inflation can make your money worth less.
The money you have when you retire is money you can't get again. As we get older, we tend to choose investments with low risk and low return. But as inflation lowers the value of money, that nest egg seems less safe because it can't buy as much. Bottom line? Often, not taking any risks comes with its own risks.
Investing, both before and after retirement, is about finding the right balance: making investments that keep your income coming in, protect you from inflation, and keep risks in check. Your plan will need safe investments with guaranteed income, as well as some stocks and other investments that protect against inflation.
You can learn to do it yourself, or you can hire a professional to help you both before and after you retire.
Find out if you are ready to leave your job.
It doesn't have to be hard to figure out when to retire. In five minutes, the free quiz on SmartAsset will match you with three fiduciary financial advisers in your area. SmartAsset has checked out each adviser and made sure they will do what's best for you. Take this quiz now if you're ready to be matched with local advisers who can help you reach your financial goals.
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