Are you getting close to retirement or still a decade or two away? Even if you plan on working for several more years, it’s extremely important to keep your retirement plans at the forefront of your mind. Ignore the excuse, “I still have plenty of time to start saving.” Don’t make these retirement mistakes.
Unfortunately, this is the same logic that leaves many people with no savings upon reaching retirement age, so this long-term goal should be treated with equal or even greater importance than your short-term financial goals.
Planning and saving for retirement can be stressful, but there are simple strategies you can implement at any age to avoid derailing your retirement goals. Here are four common problems people deal with when it comes to retirement savings.
4 Major Retirement Mistakes
Making Excuses to Avoid Saving
There’s always an opportunity cost that comes with saving and spending money, and there’s a chance for retirement mistakes. By saving for a long-term goal like retirement, we sacrifice short-term gratifications like nice dinners, new televisions, and vacations.
While there is nothing wrong with saving for a vacation, it becomes a problem when we prioritize short-term excitement over long-term stability. Sure, this sounds boring. But, a future-oriented perspective is crucial for ensuring you stay on track to meet your retirement goals.
Even if you’re self-employed, a stay-at-home parent, or think you’re “too old” to save for retirement, the fact is that everyone should be saving for retirement. There are plenty of options out there, regardless of your current situation and job. All it takes is the determination to stop making excuses for not saving and figure out a strategy that aligns with your goals.
If you’re looking for ways to start saving and investing, you might want to check out investing with Betterment or Stash Invest. Both are great options for people looking for easy ways to get started investing.
Investing Too Conservatively
If you’re 15+ years away from retirement, then your main priority should be getting high returns on your investments. A moderately risky or even aggressive strategy is ideal. You’ll likely have 2-3 decades until you plan to retire from your current job.
The problem here is that people tend to view retirement savings as a “slow and steady” investment vehicle without accounting for the fact that humans have much longer lifespans and expensive healthcare than we used to.
This means that investing too conservatively could leave you with insufficient funds to live on. This could force you to return to the workforce to support yourself in your 70s/80s. Additionally, healthcare is expensive, and unexpected medical bills could take a chunk out of your nest egg if you don’t plan ahead.
To avoid the pitfalls of aging and living longer than you might anticipate, don’t invest too conservatively. Instead, find a good balance between risk and rewards depending on your current age and future retirement plans.
Borrowing from Your Retirement Fund
While it’s totally possible to take out a loan from your retirement accounts, you want to avoid doing this for a few reasons. First, you’re hurting your retirement savings by taking out funds, even if it’s only temporary. This retirement mistake is especially risky if you’re taking out a loan on your retirement fund to pay for your child’s college tuition. They have a couple decades of income potential ahead of them, while you’re working years are coming to an end soon.
Second, borrowing from your retirement fund could lower your chances of retiring early. If you need to work a few extra years to pay back your self-funded loan, then your retirement goals may have to be postponed. While it may be tempting to borrow against your IRA or 401K, try to avoid this unless it’s absolutely necessary.
Withdrawing Too Early
Whether you’re relying on a pension, IRA, 401K, Social Security, or a mixture of retirement options, one of the biggest retirement mistakes comes from withdrawing early. Not only could you incur penalties for withdrawing before a certain age, but your savings could dry up midway through your retirement years if you’re not extra careful about monitoring your expenses.
Taking out Social Security earlier also lowers your monthly payment amounts. This can make it difficult to cover your expenses. You may be forced downsize your home and lifestyle in the early stages of retirement.
Saving for retirement shouldn’t be a hassle, but it also shouldn’t be something you put off indefinitely. By saving as early as you can and leaving your funds alone, you’ll be in a much better position to meet your retirement goals on time.
What about you? Have you been making any retirement mistakes? How are you getting back on track?