Some mistakes are harmless. Others hurt.
Saving for retirement is no different. Certain errors and lapses are annoying but ultimately relatively painless. Others, though, are downright frustrating and immensely regretful.
Avoid these common financial mistakes to prevent needless heartache, endless regret and ongoing frustration:
- Putting Your Faith–and Money–in the Wrong People. Consider your friendships carefully. Be wary of anyone who asks you to invest in his next venture. Red flags include promises of quick returns over short periods with little risk. Recently widowed or divorced people are especially vulnerable to manipulation by those who prey on others’ weaknesses. Always ask your financial advisor, attorney or trusted relatives to give you feedback about any financial investment you are considering. Question new investments and new financial relationships.
- Not Saving Early Enough. With compound interest, the earlier you start saving, the quicker your investments grow. Time also shields you from market downswings while enabling you to realize higher returns when the market rebounds. A lack of basic financial knowledge too often leads many to avoid retirement savings altogether. But a complex understanding of the stock market is not necessary. Consulting with a trusted and qualified financial advisor and learning the basics can make a huge difference in helping build a secure retirement. For those who started retirement savings late, there are plenty of catch-up options: downsizing, cutting expenses to increase retirement account contributions, and paying off debt faster to reduce future retirement burdens. Often, working for a few more years is also necessary to compensate for lost time and longer lifespans.
- Avoiding the Stock Market. Despite short term fluctuations, the stock market is still considered one of the most stable, long-term investments. Caution is certainly warranted, but avoiding it altogether is generally not advisable. Instead, investors should balance their portfolios based on age, financial situation, and personal risk tolerance. Young investors can be more risky in the stocks they choose as they have plenty of time to recover from dips and still reap from recoveries. Older people, on the other hand, should invest in more stable, secure stocks. But they should not withdraw entirely; longer lifespans dictate that people in their 60’s and 70’s should continue investing as they will need to support themselves for 2-3 decades longer. All investors should review their portfolios annually to adjust to their changing needs and to rebalance their investments.
- Avoiding Homeownership. Purchasing a home protects from inflation, especially if you bought your home at the right time. It also typically generates wealth over time, and protects you from rising rents and new landlords that may decide to convert the property and force you out. Home equity also makes it possible for you to get a HELOC, reverse mortgages or other borrowing options.
Other common financial regrets include taking on high student loans, marrying without a prenuptial agreement, starting Social Security benefits too early, and failing to save for long-term care.
At Silverman Financial, we establish ongoing relationships with our clients and provide financial planning expertise to support flexible, lasting and rewarding retirements.