Planning for retirement is undeniably a long-term endeavor. It might seem remote at the moment, but the aspiration for most is to attain financial independence someday, irrespective of their fondness for their current work. Arriving at a comfortable retirement necessitates dedication, a steadfast approach, and a well-devised strategy. However, it’s crucial to avoid departing from the correct progression. Regrettably, a lot of individuals stumble into expensive errors when planning for their golden years.
Not preparing at all is a significant slip-up, as solely counting on government support such as social security may not be sufficient. If you’re passionate and ready to begin putting money away for retirement, here’s a list of typical blunders to steer clear of:
1. NOT MAXIMIZING CONTRIBUTIONS TO RETIREMENT ACCOUNTS
When adding to your retirement funds, there’s often a threshold to the yearly contributions you can make. When you reach this limit, it’s known as ‘maximizing your account’ for the year. This is encouraged, as pouring as much as legally permissible each year expedites your savings growth for retirement. It’s estimated that most individuals will need a minimum of $1 million in assets for a comfortable retirement. By maximizing contributions to your 401(k) and IRAs, along with any other investment accounts, you can speed up the process of hitting your savings goal.
2. FAILING TO LEVERAGE EMPLOYER MATCHING
Overlooking employer matching might be an expensive mistake in your pursuit of retirement. If your employer offers a matching 401(k) program, be sure to contribute optimally to make good use of the offer. Receiving employer-matching contributions is almost as good as having ‘free money’ which you shouldn’t overlook.
3. HIGH PORTFOLIO MANAGEMENT FEES
While investing in markets can yield attractive returns, it’s not without costs. Your investment portfolio will attract certain fees like mutual fund operation costs, trading commissions, and robo-advisor fees. Be proactive about limiting fees and consider affordable, reliable platforms like Ally Invest, TD Ameritrade, and E*Trade.
4. PREMATURE WITHDRAWALS
Also, avoid dipping into your savings prematurely. Your retirement funds should be viewed as untouchable unless absolutely necessary. Tapping into your 401(k) or IRA accounts before reaching 59 ½ years will result in a 10% penalty in addition to income tax on the withdrawn funds.
5. STARTING LATE
While it’s never truly too late, the earlier you start saving for retirement, the better. The magic of compound interest means more to people who start saving when they are young. The sooner you begin, the less you have to contribute in the long term compared to someone who starts late.
Finally, setting aside money for retirement may seem daunting, but it shouldn’t be postponed. It doesn’t require a huge investment to kick-start your retirement savings. Even a tiny contribution to your 401(k) and Individual Retirement Account (IRA) can result in a comfortable retirement eventually. Reducing expenses and finding ways to raise income will make it easier to put money away for retirement. So, tread carefully and avoid these common retirement savings mistakes for a worry-free retirement.
