When the average person thinks of retirement planning, they probably think of putting money into a 401(k) or IRA, and they don’t consider any of the other aspects. Retirement planning is an extremely important financial undertaking, and it can be overwhelming if you don’t know where to start. If done right, financial planning can help your retirement to be filled with joy and freedom. However, if done wrong, a relaxing retirement may not be in the cards. We’ll look at some of the common retirement planning mistakes people make and how you can avoid making them yourself.
1. Having No Plan
This may seem obvious, but in order to begin retirement planning, you need to have a plan. It doesn’t even need to be comprehensive, but you need to have a basic calculation of how much money you will need in order to live comfortably once you retire. According to research, nearly 50% of all workers have not calculated the amount they need to save for retirement. Studies have shown that workers who calculate their retirement savings and set even basic goals have a much higher chance of putting those goals into action and achieving the desired results. Taking the first step to creating a plan is also the most important step.
2. Not Saving Enough
Saving for retirement is all about priorities and compromises. You can take that expensive vacation now, but it will impact your bottom line in retirement. If you take a less expensive vacation now and put the rest of the money towards retirement, you may be able to buy a few more years of comfort with what you’ve saved.
The minimum you should invest in your company retirement plan and 401(k) is enough to get the company match. After that point, it is in your best interest to invest whatever you can afford. Money you save now will end up being more money in retirement.
3. Waiting Too Long To Start
When you’re just starting out in the workforce in your 20s, retirement seems like a distant dream, so you put off planning until later because you’ve got time. Then your 30 years old and you may have a mortgage and a family to pay for, so you wait until 40. By now your kids are going off to college, which is another major expense. By the time you’ve reached 50, your retirement savings will be forever handicapped. In some ways, time is an even more important resource than the amount of money you put into retirement. The more time you give yourself to reach your retirement goals, the more realistic they are to accomplish.
4. Cashing Out Instead of Rolling Over
The chances that you’ll end up switching jobs over the course of your working life is relatively high. Very few people stay with the same company all the way to retirement. When you switch jobs, the option exists to roll over your 401(k) or cash out. Many young people choose to cash out which is a big mistake. Cashing out means taking the money, paying taxes on it, and also taking a 10% penalty if you’re under 59 ½ years old. This will really set you back on your retirement planning goals.
Here is a simple rule when it comes to retirement funds - once money is placed in a retirement account don’t take it back out until after you retire.
5. Investing Too Aggressively or Not Aggressively Enough
Nothing can derail your retirement goals faster than bad investment decisions. People who wait too long to get started on their retirement planning often try to use risky tactics for a quick boost to their savings. If this works, it makes it seem as though this was a good decision all along. However, doing this is closer to gambling. It is safest to use long term stable investments to grow your money over time. It is also important to diversify where you put your money so any ups and downs with specific investments don’t dismantle your entire retirement plan.
On the other hand, being too risk averse is not going to help grow your retirement portfolio and can stop you from reaching your goals. Working with a certified financial planner, especially a fee-only financial planner, is the best way to make sure your money goes towards the right investments, They have the expertise and training to know how best to grow your money so you’ll have built a comfortable retirement savings when the time comes.
