With retirement just around the corner, some people can get carried away and start envisioning themselves happily spending the last years of their lives in sunny California. However, it is important to note that even after all those years of careful planning and savings there is still sufficient time to make a terrible mistake that could cost you that comfortable retirement you always dreamed of. Let's review the common errors that people tend to commit when they draw close to the retirement age.
1. Actively managed funds are convenient, but
While there are many professional financial advisors out there, not all of them are well intended and at some point, they could recommend you to switch to actively managed funds. What this actually means for you is that you will be paying more fees and commissions usually between 2.5% and 3% per year in a period when you should be saving cash. The only situation when the actively managed funds would constitute a viable solution is when the fees and commissions are eliminated.
2. Stay away from individual stocks
If you notice that your retirement funds are far off from what think you need for a carefree life, then chances are you will be tempted to try your luck in the stock trading and investment niche on your own. This is one of the biggest mistakes you can make, because the ins and outs of individual stock trading require years to learn and even more years to master. In addition, with age comes the decrease in your cognitive capabilities to a larger or smaller extent and that could be a major impediment when you need to make critical decisions.
3. Ignoring debt
In general, if you want to enjoy your golden years and have no care in the world, then it is highly recommended to pay off all your debts before you reach retirement. The last thing you want is to retire and have no control over your personal finances.
4. Sponsoring your lifestyle with money from the egg nest
As they gain more experience in their field, men and women will start earning more cash and a larger income usually means a higher temptation of spending more, particularly on things you don't really need. Unfortunately, once you get used to this kind of lifestyle it is incredibly difficult to turn back and even worse, you could be taking money out of your egg nest just to sponsor this kind of lifestyle. Unless you plan on eating pet food throughout the golden years, don't alter your lifestyle just before retirement.
5. Taking out a new 30-year mortgage
Believe it or not, statistics suggest that a great percentage of people that are in their 50s decide to take on a new long term mortgage. Irrespective of whether they want to refinance the current mortgage, buy a new home or take equity from a home, a 30 years mortgage is generally a bad idea. Think about it, are you actually comfortable with the idea that you will still have to make mortgage payments when you're 80 years old?
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