Steering Clear of Retirement Regrets

Approaching retirement can feel like a milestone moment — the end of a successful career and the start of a new phase of life. But some retirees look back on their years in the workforce with regret over their financial decisions (or lack thereof). From misguided investments to not planning for health care costs, there are several common mistakes you'll want to avoid when planning for retirement. Read on to learn how to ensure your post-career life is one of joy and contentment rather than frustration.

Getting a late start at retirement saving

Waiting until later in life to begin saving makes it tough to sock away enough money for a comfortable retirement.

When you start saving for retirement early, you benefit from the power of compounding. Compounding occurs when the returns on an investment are reinvested and generate additional earnings, which are then reinvested again. Over time, this snowball effect can grow a portfolio that's much larger than it otherwise would have been.

For example, say you start investing $200 per month at the age of 25. Assuming a 6% return compounded annually, by the time you turn 65, you'll have a nest egg worth $371,429. But if you wait until age 35 and start saving $300 per month, even with a larger contribution and the same rate of return, you'll end up just $284,609 by age 65.

Don't let the idea of not having enough money to retire keep you up at night. No matter where you're at now, you can take steps to increase your retirement savings. If you have an employer-sponsored retirement plan, make sure you contribute enough to get the maximum matching funds. If you're self-employed, open an IRA, SEP-IRA, or Individual 401(k) and start contributing as much as you can.

Not aligning your portfolio with your age and goals

Failing to align their investment portfolio with their age and goals is a common regret for retirees, as it can lead to missing out on opportunities for higher returns.

For example, younger investors decades from retirement can invest more heavily in growth assets like stocks,1 as they have more time to recover from short-term market volatility. Middle-to-late-career investors tend to shift some of their portfolios to bonds. In contrast, people close to retirement (or already retired) tend to skew more conservative, positioning their portfolios with more bonds, and even cash, so they are well-diversified and their principal is less at risk.

Of course, the right mix of investments and asset classes depends on your specific goals and risk tolerance. Work with a qualified financial advisor to find the right amount of diversification* for you.

Retiring too early

More than one-third (37%) of retirees regret not working longer,2 according to a paper published by the National Bureau of Economic Research (NBER).

Retiring too early can be a regrettable choice for many reasons. For starters, leaving the workforce early means relying on your savings for a longer time. It can also mean missing out on the potential benefits of contributing to a 401(k) or other retirement accounts that offer employer matching contributions, which can significantly boost your retirement savings.

If retiring early also means claiming Social Security benefits before you reach full retirement age, it could mean receiving a lower monthly benefit than if you had waited.

The Social Security Administration reduces benefits by up to 30 percent3 for those who start collecting before their full retirement age. For example, for people born in 1960 and later — full retirement age is 67 — but you can start receiving Social Security retirement benefits as early as age 62.4