Financial security is often a necessary priority when it comes to planning for your retirement, and this is for good reason. Retirement funds often need to replace more than 80% of an individual’s income prior to retirement, so ensuring a thoughtful plan is in place is essential. Without proper guidance, individuals preparing for their retirement are prone to making a number of detrimental mistakes. Taking time to learn about best practices and common mistakes can benefit individuals over time.

 

Retirement Duration

When planning for retirement, it is important to be cognizant of how long your retirement will last. Considering average life expectancy is a start, but for most people, this estimate is low, meaning more people over time will live beyond that projection. Because of this, it is important to account for this difference when saving for retirement; should you run out of your savings, you will be pressed to find an alternative source of income or rely on the finances of loved ones. It is practically impossible to accurately predict your own life expectancy, so the best course of action is to simply aim high.

 

Inflation

Over time, inflation will drastically alter the value of your savings, meaning that you need to account for this influence as you are planning for your retirement. The historical average inflation each year is roughly 3%, meaning you should assume that your cost of living will rise by 3% each year. If you fail to consider inflation when saving and investing, you may find that your retirement funds cannot stretch as far as you had hoped.

 

Investment Diversification

Settling on a retirement plan may sound simple in theory, but realistically, individuals should cultivate a diversified investment portfolio. Being conservative in your investments seems like a secure option, but it can actually result in lower savings by the time you actually retire. Diversification tends to provide more security and stability as well as higher returns, and this portfolio property is more important the closer you are to retirement.

 

Re-Evaluation

Contrary to what some individuals believe, choosing a retirement plan is not a one-time ordeal. Instead, it is advised that you re-evaluate your plan and investments at least once every two years to ensure that your plan is going to adequately provide for your needs when you retire. Changes in your income can influence your annual contributions, and you may find it beneficial to reallocate your investments over time. It is better to make adjustments prior to retirement rather than realizing you need to make drastic changes to your lifestyle when your savings do not support your needs.