The Biggest Regrets Retirees Have Today (and How to Avoid Them)

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For anyone planning—or hoping—to someday retire, Vanguard recently generated a lot of helpful advice. In a blog post, the brokerage company asked retired and soon-to-be retired readers, “If you had a do-over, what would you do differently to prepare for retirement?” 

The question prompted several hundred responses. Here are some of the key regrets, representative responses, and ideas to avoid making the same mistakes.

Not Starting to Invest Earlier

John L. bemoaned the fact that he didn’t start investing until he was almost 40. “I’m 55 now and in decent shape, but I would be much better off if I had started in my 20s. The power of compounding is an awesome force, but it works best over several decades.”

The take-away? Time makes a huge difference in your investment returns. For example, if you invest $200 per month for 50 years and earn a 7 percent average annual return, you will end up with over $1 million. But if you invest for 40 years instead, assuming the same monthly investment amount and average annual return, you’ll end up with about half as much.

Making Ill-Informed Investment Decisions

Roger B said, “Early on, I was ‘sold’ a couple of real-estate tax shelters, and of course I lost all those investments. I understood them when the salesperson was in the room, but the moment they left, so did my understanding.”

The take-away? Don’t make random or spontaneous investment decisions. Instead, determine your optimal asset allocation and build your portfolio accordingly. Making sure your portfolio has the proper stock/bond allocations based on your investment time frame and temperament is one of the most important keys to your investing success.

Investing Too Heavily in Your Employer’s Stock

A reader who goes by “Cracking Retirement” regretted, “Investing my savings for 20 years in the company I worked for. It gave a good dividend and seemed to be doing well. Then came the 2008 crash… We ended up losing a good six figure sum.”

The take-away? If your employer went out of business, it would be tough enough to lose your job. Losing a big chunk of your retirement savings as well because you invested heavily in its stock would be brutal. To manage that risk, hold no more than 10 percent of your portfolio in your employer’s stock.

Opting for a Traditional IRA or 401(k) Instead of a Roth

S.S. said, “In addition to being diversified in asset classes, I should have also been diversified in tax types—i.e., most of my funds are in a traditional 401(k) plan (soon to be rollover IRA), so now everything I withdraw is taxable.”

The take-away? When you’re in the early stages of your career and your income puts you in a low tax bracket, a Roth can be especially advantageous. When you’re further along in your career and earning more, a traditional 401(k) or IRA may be better. However, knowing which is truly best requires knowing not just your current tax bracket but the bracket you’ll be in during retirement as well.

Since you can’t predict that, it may be best to contribute to a traditional 401(k)/IRA and a Roth.

Taking Social Security Too Early

Judith A. said, “When I retired, I made the mistake of taking my Social Security at age 62, not realizing how much more I would get every month if I waited.”

The take-away? For most people it’s best to wait at least until your Full Retirement Age (67 for anyone born in 1960 or later) to claim Social Security benefits, when your benefit amount will be 33 percent higher than at age 62. Even better if you can wait until age 70, when your benefit will be at its highest.

Focusing Only on the Financial Aspects of Retirement Planning

Jim B: “I was in a highly visible professional position for many years and when it abruptly ended, I was at a loss with what to do.”

The take-away?

Don’t retire from something; retire to something, such as volunteering with an organization you care about, turning a hobby into a small business, or something else you’ve always wanted to do.