Someone once joked, “Retirement is when the living is easy and the payments are hard.” It’s true that many retirees struggle to make ends meet, but that doesn’t have to be your story. Instead of making do with spare change, you can have money to spare.
To help you get there, we’ve compiled the following list of seven deadly retirement planning sins to avoid.
1. Not saving at all
This one seems obvious, but it’s still worth mentioning because many people fail to save money for retirement. Unfortunately, Social Security alone was never meant to be a sole source of retirement income. You have to save too.
2. Waiting to save
We often see people who have good intentions to save for retirement, but then life gets in the way. Unexpected expenses come up, and more immediately pressing financial priorities override the long-term goal of retirement. Did you know that the younger you start saving for retirement, the less you’ll have to save overall to achieve your goal? Take advantage of the power of compound interest by starting today.
3. Saving for kids’ college instead of retirement
No one can blame parents for wanting to help their children pay for college. But don’t sacrifice your retirement nest egg in the process by shorting your contributions or taking early distributions or loans against your account. Consider opening a Coverdell Education Savings Account when kids are young, or look into the benefits of using a Roth IRA as a college savings vehicle.
4. Only saving enough to get an employer match
Many employers offer to match up to a certain percentage of your contributions to employer-sponsored plans. This is a great benefit you should take advantage of, but we encourage you not to limit your contributions to only maximizing the match. It’s best to base your contribution amounts on how much you’ll need in retirement, and consider the employer match as extra cushioning.
5. Selecting inappropriate investment allocations
Risk, fees, and overall performance are important factors to consider when choosing your retirement investments. Unfortunately, people often make the mistake of basing their choices on emotion or a limited understanding of their options. To save effectively for retirement, maintain a long-term perspective. Research your options and consider working with a professional to select the investments that best suit your individual needs and goals. Then, review your plan from time to time so you can make any necessary adjustments, especially as you get closer to retirement.
6. Borrowing from your retirement savings
It’s best to save intentionally for unexpected expenses, college educations, and other large purchases, rather than borrow from your retirement account. This can hurt you in two ways: 1) you lose the interest you would have earned on the money borrowed, and 2) you risk having to pay penalties and taxes. This can negatively impact your financial security in retirement. Before considering a retirement loan, read this.
7. Failing to roll over old retirement plans when you switch jobs
Some people make the mistake of cashing out their retirement account when they leave a job, but this action may result in penalties and taxes. Others simply leave the account alone and forget about it until retirement. A much better strategy would be to roll the money into an IRA or 403(b). This way, you may enjoy more investment options and avoid taxes and penalties.
Even the best-laid retirement plans have been sabotaged by these seven mistakes. By avoiding them, you are one step closer to a financially peaceful retirement that lets you focus on what matters most to you. To speak with one of our consultants, call 866.621.1787 or email retirement@agfinancial.org.