×

7 retirement-planning mistakes you need to avoid

  • Many people erroneously believe they must stop working, while others wait too long to start saving for post-career years.
  • Other mistakes include not considering non-financial factors, failing to consult a spouse and forgetting about an estate plan.
retired mistakes
MekkelWilliam | Getty Images

Without initiative or proper guidance, many of us never learn about fundamental retirement-planning steps until we've already made a mistake. Here's a list of the top seven mistakes that hurt your chances to achieve financial security in retirement.

1. Assuming we should plan to retire

Rocking chairs, sunsets, golf and a sailboat. If you watch enough financial-planning ads on TV, you'll notice a consistent theme: Your financial plan should reflect the singular goal of retiring at a specific age and sailing off into the sunset without a care in the world. Of course, there's nothing wrong with looking forward to no longer working, but we tend to get so wrapped up in the Utopian promise of retirement, we forget to decide if full retirement will truly make us happy.

The fix: Don't let outside influences decide your future. Think about what you truly want for you and your family. Work can often be one of the most rewarding aspects of life. If that's the case for you, consider how you might continue to work in your later years. It could mean transitioning to a different role, cutting back hours or trying something totally new.

2. Waiting to plan for retirement

No matter how much of it we have, money often causes anxiety at every stage of our lives. In fact, finances have ranked as the top stressor among Americans, according to the American Psychological Association, since the survey began in 2007.

So, naturally, we're all working to fix the most common and often most significant issue in our lives, right? Wrong. In 2015 just 38 percent of investors reported having a plan to reach investment management and retirement goals, according to a Gallup survey.

More from Advice and the Advisor:
How to avoid costly 401(k) rollover mistakes
7 ways to make sure you don't outlive your savings
Starting a new job? Don't forget your 401(k) at your old one

The fix: Stop procrastinating and start planning. The burden of financial stress is far worse than the upfront challenge of putting a plan in place. To start, write down your current financial needs and future goals. Most important, seek help. Professional advisors can see the hidden gaps in your planning that might hurt your financial future.

3. Bad assumptions

A retirement plan often consists of cash-flow projections to determine the likelihood of success for future goals. These projections must make certain assumptions that can hugely affect the outcome. Therefore, unrealistic expectations regarding certain factors could skew the result, meaning retirees could face a far different reality than what the math suggests.

The fix: Be conservative. Don't forget that, thanks to inflation, things will cost a lot more money in the future. Don't assume that invested assets will grow at 10 percent every year. Finally, reconsider the length of retirement. As medicine and technology improve exponentially, retirees will live much longer than ever before.

4. Only looking at the numbers

We all want to make sure we have enough money for our nonworking years. As a result, financial planning tends to focus on the math. We crunch the numbers each year to make sure we have enough to last a lifetime. Unfortunately, staring at spreadsheets often means we forget to plan for living happy, purposeful lives. We may succeed in saving enough but still fail to actually enjoy the years we've spent so long preparing to live.

The fix: Define what a truly successful retirement looks like beyond the dollar amount you'll need to pay the bills. Consider how you'll make the transition, how you'll spend your time and what you want to accomplish. Having a plan means you won't wander aimlessly. You need to find fulfillment emotionally and intellectually.

5. Not communicating with your spouse

In a marriage through your working years, you and your spouse likely have grown accustomed to each other's daily patterns. For years your routine has reflected the fact that work consumed much of your time. Spouses planning for retirement often forget to discuss the effects of no longer working on marriage and day-to-day life. I know when I'm standing in the kitchen in the morning later than usual, my wife is sure to ask me when I'll be heading to work.

"Make sure to plan to enjoy life even before retirement. With the right plan, you'll be on your way toward perfectly aligning life and wealth."

The fix: Well before you plan to stop working, have many conversations with your spouse about how each of you envisions retirement. Find common ground to set specific mutual goals, like how often you want to travel. Most important, remember to compromise. If you avoid these honest conversations, you'll find out too late that your spouse didn't have the same vision of the future.

6. Overlooking legacy planning

While many people take the right steps to prepare for a successful retirement, some families forget to address important estate-planning considerations. Although you may have plenty of money to live on, how will money left over transition to your children? Without a plan, your estate could take a hit from Uncle Sam, and your children may be unprepared to deal with the influx of cash.

The fix: Establish an estate plan. At a minimum, make sure you have an up-to-date will that can carry out your wishes. Other planning tools, like trusts and life insurance, can ensure your money makes its way to the kids exactly as you'd like. Finally, educate your children not only about how they might receive money in the future but about how you expect them to properly manage the assets.

Your Wealth: Weekly advice on managing your money

Sign up to get Your Wealth

Please enter a valid email address
Get this delivered to your inbox, and more info about about our products and service. Privacy Policy.

7. Overlooking short-term goals

Retirement is such a major part of a financial plan that some people forget to keep an eye on shorter-term goals. While you may be saving enough for a far-off future, you shouldn't do so by sacrificing your day-to-day financial and personal well-being. Beyond the financial goals, we tend to forget about living a life by design every day.

The fix: Don't put money that you'll need prior to retirement away into retirement accounts. Make sure to account for expenses like college tuition, a mortgage, additional car payments, etc. Be sure to keep some cash in the bank for emergencies, like a leaking roof or unexpected medical issues. Most important, make sure to plan to enjoy life even before retirement. With the right plan, you'll be on your way toward perfectly aligning life and wealth.

(Editor's note: This article originally appeared on Investopedia.com)

— By Michael Conway, president and CEO of Conway Wealth Group at Summit Financial Resources

Contact Advice & Advisor

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    Get these newsletters delivered to your inbox, and more info about about our products and service. Privacy Policy.

Latest Special Reports

  • CNBC|Survey Monkey Small Business Survey animation

    The Small Business Survey provides insight to Main Street opinions on regulation and hot issues facing smaller firms.

  • The latest news from the Squawk Box team on investing and business.

  • Business icons and provocateurs share their innovative models. Learn how to upend old industries and start new ones that move markets.

Financial Advisors