The fact that you’ve made the decision to get serious about retirement planning is commendable. However, if you decide to go about this without a financial planner, you might make a few mistakes along the way. Not that you need a professional by your side. Just know that a planner can assess your long-term goals and help you develop a doable strategy.
Your actions today impact your future. For this matter, it is important that you know the ins and outs of retirement planning. Here’s a look at four things NOT to do when planning for your golden years…
1. Relying on Social Security
This is a costly mistake. Even if Social Security is still around when you’re ready to retire, chances are that it won’t be enough. As of 2013, the maximum a full retiree can receive each month is around $2,500.
Take a look at your expenses. Can you afford to live on $2,500 a month? Depending on where you live, this may barely cover your housing costs – even if you’re living a relatively simple life. If you only rely on this income, you may have to supplement with part-time work.
Plan for the future today and diversify. Consider opening a Schwab Roth IRA, or use bank products, such as a CD or money market account, to grow your liquid cash.
2. Not taking advantage of a 401(k) plan
Maybe you declined to participate in your employer’s 401(k) plan because you don’t want money taken out of your paycheck. Big mistake. As one of the easiest ways to jump start retirement planning, this account can pave the way for a comfortable retirement. Understand that you don’t have to contribute the maximum under your plan. Contribute the smallest amount possible, and then increase contributions as your finances improve.
3. Dipping into your retirement account
There are provisions that let you borrow from your retirement account. This can come in handy if you need a down payment for a house or have to pay your kid’s college tuition. The rules vary depending on the type of account, but typically you’ll have to pay taxes and penalties on early withdrawals.
Although the money is there, don’t think of your retirement accounts as an emergency savings account. If you have to dip, okay. But before you make a hasty decision, consider whether you can hold off and save for an expense. If you borrow, make sure that you repay yourself. The less you put away, the less you’ll have when you retire.
4. Starting too late
Another costly retirement mistake – waiting until you’re older to get started. Sure, you can start planning in your 40s. But imagine how much you’ll have if you started in your 20s or 30s.
Because retirement may be years away, it’s easy to put off planning until it’s too late. However, if you want to join ranks with “unworried retirees, it’s key to recognize common retirement planning mistakes, and learn how to avoid them.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.