Though the idea of retiring can be exciting, making a plan for retirement saving can be a bit intimidating.
There are some common mistakes which many people make when planning for retirement, mistakes which can easily be avoided with a bit of forethought.
Here's a look at seven of the most common mistakes people make during saving for retirement.
Mistake #1 – Putting it Off
The first mistake of retirement saving is waiting too long to begin. So many people believe that they can always make up for lost time by saving more later. This kind of mentality does not usually prove reliable. The fact is that your biggest friend in retirement saving is time: the longer your money has to earn interest, the faster it will grow your later years. If you wait, you are essentially robbing your retirement of its power.
Mistake #2 – Not Maxing Out Contributions
Those who have access to a 401(k) or other kind of retirement account, especially those which have an employer match, should max out their contribution. Remember that time is your greatest asset. The more you put in the account, and the sooner you put it in, the greater your payoff later.
Mistake #3 – Cashing Out Retirement
While your retirement account is technically a savings account, you should not see it as an account to be tapped whenever you need a little extra cash. Barring major situations such as life threatening illnesses, you should generally not cash out your retirement for any reason. Not only does an early cash out cause you to lose the momentum of your investments, but you will probably have to pay taxes and penalties for the early withdrawal and privilege.
Mistake #4 - Underestimating How Long You’ll Live
No one knows just how long they will live, an important piece of information that would certainly come in handy during retirement planning. In order to have enough money for your retirement, many retirement experts suggest that you plan to live into your late eighties, or even your nineties. Planning to live only into your seventies could mean that you will run out of money early as you outlive your expectations.
Mistake #5 – Guessing Instead of Calculating
Would you be able to retire with $500,000? How about $750,000? The fact is that if you have never used a retirement calculator, you probably have no idea just how much money you will need in order to retire comfortably. Every person who plans to retire should use a retirement calculator in order to determine just how much money they will need in order to retire while maintaining a comfortable standard of living.
Mistake #6 – Choosing the Wrong Investment Strategy
Generally those who are younger are advised to invest more aggressively, tapering to more secure investments as they grow older. There are many investment strategies available, from aggressive to conservative. No two people will have the exact same return on their retirement savings accounts. But, those who follow a specific investment strategy can expect to have better average returns than those who invest aimlessly.
Mistake #7 – Panicking During a Downturn
The stock market downturn of 2008 wiped out trillions of dollars of wealth, much of it from the retirement accounts of hardworking Americans. Those who sold during the downturn likely lost not only significant amounts of money but also significant amounts of confidence in the markets. In contrast, those who stuck it out likely recouped all the money that they lost on paper, and if they are still in the market, they just took part in one of the best stock markets in years. The lesson is clear: panicking in a stock market downturn is likely to be a losing position, and may cost you big come retirement time.
By avoiding these simple mistakes you can help ensure that you will have the funds needed to live out a comfortable retirement.
If there would be one word of advice – it would be don’t wait. Check your retirement plan against the seven mistakes located above, and fix any problems now – while there is still time.