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These Simple Retirement Mistakes Could Cost You Over $660K

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Here's how to make sure you avoid them.

When you’re counting down to retirement, it’s easy to get caught up fantasizing about your future work-free life.

Dreaming of traveling the world? Getting more days on the golf course? Spending quality time with family?

Whatever your ideal retirement looks like, you can be sure you’ll need money to fund it -- but these common mistakes could cost you about $668,000.

Fortunately, we’ve outlined the mistakes too many Americans are making, identified how much they’re costing you and laid out how to correct them.

The Retirement Mistakes That Could Cost You $668,000

1. Neglecting interest rates: Cost -- ~$33,000

Do you have money sitting stagnant in a traditional savings account? If so, when’s the last time you checked the interest rate? This account could be costing you thousands in lost interest.

The national average interest rate for a saving account is just 0.06%, according to the Federal Deposit Insurance Corporation (FDIC).

However, right now you can easily find savings accounts with interest rates as high as 1.85%. Moving your money to an account with higher interest is one of the simplest ways to make extra money for retirement -- without having to pay tax on withdrawals (although interest is taxed).

Think about it this way: If you have $20,000 sitting in an account earning 0.06% interest, you’d earn about $12 annually. An account with 1.85% interest would earn you $370.50. That’s without any additional deposits and for just one year. After a few years, the returns would really add up.

Consider this: Say you’re 50 and want to retire at 65. If you open the same high-interest account with the same amount and contribute $1,000 a month, you’d end up with $233,551 -- more than $33,000 in interest alone. With the old savings account, you’d only end up with $200,000, with $988 in interest.

What you should do:

Open a high-yield savings account.

Check out the CIT Bank Money Market Account. It currently offers 1.85% interest and doesn’t charge any service fees. You can open an account with a $100 minimum deposit.

2. Not seeking expert advice: Cost -- Retirement confidence and possible higher returns

If you’re stubborn and dead-set on planning for retirement yourself, you’re going to end up costing yourself money and could miss out on other opportunities to help enhance your golden years.

It’s tough to put a dollar amount on professional advice and guidance, but Fidelity reports that consulting a financial advisor can help you earn up to an extra 4% return on your investments. Advisors are also skilled in identifying areas where you could be overpaying in taxes and fees, as well as how to best allocate your savings among your retirement accounts and investments.

A Voya Financial report found that only about 28% of people consult a financial advisor. While using an advisor may cost money, the report found that 79% of people who use one said they “know how to pursue achieving their retirement goals.” The study also found that 59% of those who use an advisor have calculated how much they need to retire, while 52% had a formal retirement investment plan in place.

“People who regularly use advisors are highly reliant on them. Three-quarters rely on them for holistic, full-picture financial guidance, and two-thirds say that a ‘financial professional’ is their primary source of financial guidance and advice, compared to just 8% of non-advisor-users who rely on professional advice,” the report states.

What you should do:

Speak with a financial advisor. We designed a tool to take the extensive research out of finding one that’s best for your needs.

Here's how it works:

  1. Answer these few easy questions about your current financial situation.
  2. Our SmartAdvisor tool matches you with up to three advisors who can provide expertise based on your specific goals. You don’t have to spend hours interviewing dozens of people and firms.
  3. Check out the advisors' profiles, interview them on the phone or in person and choose who to work with in the future.

3. Not saving enough: Cost -- $150,000+

While this seems incredibly obvious, one of the biggest retirement mistakes that ends up costing people the most money is just not saving enough.

If you haven’t, we recommend using our free retirement calculator to estimate how much you’ll need to save for retirement.

There are lots of retirement savings plans available, including IRAs, Roth IRAs, pension plans and HSAs, but the retirement savings option most often overlooked is the one right under your nose: your 401(k) plan. (For nonprofit employees, it’s your 403(b), or thrift savings plan (TSP) for government or military personnel.)

These work-sponsored options are a great way to lower your taxable income and an ideal way to sock away cash. When your employer matches your contributions, it’s doubly worthwhile to take advantage of the account.

The Washington Post reported last year that the average company 401(k) match was up to 4.7% of employees’ salaries, while the median household income in 2016 was $59,039, according to the U.S. Census Bureau. By that math, if you’re not contributing to a 401(k), not only are you missing out on up to $18,500 per year in pre-tax, interest-earning retirement savings (the annual contribution limit), you’re also leaving $2,774.83 in free money from your employer on the table.

Another option is also contributing to a Roth IRA. These accounts let you contribute up to $6,500 per year ($5,500 if you’re under 50). Tax is taken out on your contributions so withdrawals in retirement are tax-free. If you’re older than 50, setting up automatic monthly deposits of about $500 to a Roth IRA will put you just about to the limit. If you’re under 50, $450 monthly deposits can get you there. If you start at 50 (and assuming a 6% return), this could help you save an additional $151,000 by the time you turn 65. The earlier you start, the better.

No situation is the same and you might not be able to max out your contributions each year, but taking advantage of every savings opportunity available to you is crucial to having enough for a stress-free retirement.

What you should do:

First, speak with your work benefits representative to see what options are available for you. Most plans allow you to elect for an automatic deduction from your paycheck. Anything you can automate can help make retirement savings effortless. The less you have to think about it, the better.

Next, speak with a financial advisor to see how you can best maximize your retirement savings plans. These experts can advise you on what accounts can net you the best returns in the optimal amount of time, based on your specific goals. If you need help finding one, our SmartAdvisor tool can get you in touch with a financial advisor in just a few minutes.

Here's how it works:

  • Answer these few easy questions about your current financial situation.
  • Our SmartAdvisor tool matches you with up to three advisors who can provide expertise based on your specific goals. You don’t have to spend hours interviewing dozens of people and firms.
  • Check out the advisors' profiles, interview them on the phone or in person and choose who to work with in the future.

4. Staying in your current home: Cost -- ~$265,000

If you’re nearing retirement age, or are already into your 50s, your kids have likely moved out and you’re in a home with more space than you probably need. This is costing you money you could be saving for retirement.

The national average housing costs per year in retirement are $8,819. Multiply that by 30 years and you’ll spend an average $264,570.

Between a mortgage payment (if you’re still paying off your home), property taxes, insurance, potential homeowners association fees, utilities and maintenance, a large home is expensive to keep up. A recent GoBankingRates study revealed that owning a home costs an average $1,204 per month in maintenance alone.

There are certain perks that go along with owning a home, including a couple of key tax benefits. For instance, if you itemize your taxes, you can deduct your property taxes and any mortgage interest you pay. You won’t get these breaks with a rental, but if you’re expecting your income and tax bracket to drop when you retire, you won’t get as much bang for your buck from these deductions.

What you should do:

Consider downsizing. If you don’t need all that space anymore, a smaller home could save you serious money. Our own recent study showed that retirees are moving to these cities, many of which are known for both good weather and a lower cost of living. Or explore downsizing options and home values in your neighborhood.

Another option: Refinancing your mortgage. If you’re still paying off your home and don’t want to move, consider refinancing your mortgage to get a better interest rate and lower monthly payments. Speaking to a financial advisor can help you figure out if this is a good option for you. If you don’t have one, our SmartAdvisor tool can match you with an advisor in a few minutes. All you have to do is answer a few questions.

5. Underestimating Healthcare Expenses: Cost -- $220,000

You don’t want to reach retirement age just to find yourself in the hospital.

Unfortunately, it’s a more common scenario than you think. Of older adults, 80% have at least one chronic disease and 77% have two or more, according to the National Council on Aging.

Another sobering statistic: 90% of Americans ages 55 and over are at risk for high blood pressure, a disease preventable through lifestyle choices.

Studies show the average 65-year-old couple will need $220,000 to cover health care expenses in retirement.

But most people dramatically underestimate their healthcare expenses and overestimate the help they will get from Medicare. Top economist Paul Frostin estimates that Medicare will only cover 51% of healthcare expenses for retirees.

Many people approach retirement thinking they will have far lower expenses in their golden years. While the average retiree has 25% lower expenses than non-retirees, healthcare expenses jump by more than 40%.

What you should do:

Estimate your healthcare expenses ahead of time. This calculator from AARP is a good starting point and can help you plan ahead for what you might need.

Want more retirement advice?

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Photo: iStock.com/Yuri_Arcurs