Bankrate ran an article recently called Nine Dumbest Retirement Moves that I think is very appropriate for those of us earlier in the retirement planning process. These are all mistakes one can easily make if they aren’t being particular careful and all are easily avoided as long as one keeps retirement in mind, at the cost of immediate and instant gratification. I’ll repeat all nine, titles only since they’re descriptive enough, and then discuss them at a higher level.
1. Buy more home than you can afford
2. Base your projections on today’s costs
3. Raid your 401(k) or cash it out
4. Count on Social Security
5. Believe your benefits will never change
6. Allow your kids’ needs to trump yours
7. Count on your partner’s income
8. Plan to work forever
9. Don’t worry about health issues
Of the nine, six are mistakes of assumptions. In fact, some of those are not so much an active assumption that you made, but a default assumption you just assumed to be true and thus never thought about it. What’s the difference? Let’s say you tell your wife or husband you’ll be arriving at an airport at 3pm and you say nothing else. The active assumption you made was that your partner would recognize that and know to pick you up at 3pm, otherwise you would’ve explicitly asked for a ride. You are surprised when they say they can’t make it because they have other obligations, it’s a default assumption that your partner could pick you up, one that you never really actively made, it just sort of happened. See?
Anyway, #2, #4, #5, #7 – #9, are all assumptions that you made or didn’t make that could come back to bite you. The key to understanding how to avoid the mistake, especially know that you’re aware of them, is to double check to see if all of those assumptions, should they prove wrong, are taken into account in your retirement plan.
As for the other dumb moves, they’re made mostly from ignorance. For example, buying more home than you can afford (or buying more anything that you can afford), is one made from just not realizing that by increasing your expenses, you reduce your retirement savings. Is it necessarily a dumb move? Only if retirement is your number one priority.
Oh, as for #8, please don’t think you’ll work forever… that’s not a great way to go through life. 🙂
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