A common fear among Americans is that they will not have enough savings to retire comfortably. This is a valid concern, as there seems to be a wide gap between expectations and what is being done to achieve retirement goals. A recent study reported by the Wall Street Journal indicated that less than a quarter of Americans surveyed were setting aside money for retirement. Personal financial education just does not seem to be at the top of most people's lists. If you have dreams that you wish to pursue in your golden years, or simply want to take it easy and have peace of mind, here are some common retirement planning mistakes that you will want to avoid.
Not Starting Early
Too many people mistakenly believe that they can make up for lost time by saving more later. This generally does not ring true, and most of us do not hit the jackpot with Powerball just days before retirement. Time is your greatest ally in retirement savings. The longer your investments have to grow and earn interest, the better off you will be. Start investing as soon as you can. Even if it is only a small amount, the compounding interests of your returns will pay off.
Not Saving Enough
Starting to save is a great first step. However, it is important to save with clear goals in mind. Even if you set aside money regularly, you may still have a significant gap between how much you are saving and how much you will need.
As you start to calculate your own savings needs, pay attention to your age, current income and your estimated social security benefits. If you have access to an employee match 401(k) plan, make sure you never leave free money on the table and make the maximum contribution each year. It is staggering how many people have access to these sorts of plans and do not take advantage of them. According to a recent report in Forbes, 68% of working people aged 25-64 do not participate in an employer-sponsored plan.
Borrowing and Early Withdrawals
While retirement accounts are technically considered savings accounts, these should not be seen as something to be tapped into when you need some extra cash. There are a few exceptions, but as a general rule you should not touch your retirement accounts for any reason. You not only lose the momentum of your investments, but there are usually taxes and penalties that have to be paid when you take an early withdrawal.
Underestimating Life Expectancy
It is glorious that we are now living longer. When it comes to saving for retirement, however, living longer may not be such a good thing. If you use average life expectancy figures to determine how much to save, and you are lucky enough to live beyond the average life expectancy then you risk running out of money. Play it safe and plan for longer-than-average retirement to avoid outliving your assets.
Retiring Too Early
It can be tempting to start the party too early and retire before you have enough savings built up to sustain you for the long haul. By working a few more years, either full time or part time, you may be able to put off tapping into your retirement savings and allow it to continue to grow for you.
Not Being Conservative Enough in Retirement
Do not let all of the personal money management prudence that got you to the retirement transition get thrown out the window with your newfound freedom. While it may sound like a good idea to join the local country club, book a cruise, or jet off to Paris, be sure that your retirement budget can sustain this sort of spending. An often-quoted guideline by banking and financial service professionals is the four percent rule. The rule sets a sustained annual withdrawal rate of a retirement portfolio that is considered “safe” and that will last for thirty years.
Saving for retirement early and often is great, but unless you are investing your money in the right types of assets, you may not be optimizing your investments. You want a mix that gives you the best return for the least amount of risk, with the highest probability of meeting your retirement goals. Find a financial advisor you can trust to have your retirement interests in mind to help you diversify your investment portfolio.
Planning for retirement does not have to be so daunting and littered with pitfalls. Give yourself some peace of mind – start on your way to smarter retirement planning by scheduling an appointment at your local CHROME store. At CHROME, we feel that managing your savings should not be a struggle. Our simplified approach to IRAs make it easier and safer to grow your retirement savings and meet your goals. No matter how near or far off your retirement is, take advantage of all the tax advantages out there and start saving smarter with help from CHROME.