Okay, we’re just going to come right out and say it; a recent national survey showed that over 85% of all respondents weren’t confident that they would be able to retire comfortably based on their current retirement plans. 85%! That’s a huge, scary amount of people that don’t believe that they’re going to have enough money to take them through retirement.
If you’d like to be part of the 15% of people who will have enough to retire comfortably, you should definitely avoid the 8 mistakes that we have outlined below. Check them out, take them into full consideration and, if you’re already making them, start doing something today to stop and get your retirement ship back on course.
- Failure to plan in advance. One of the questions in the survey that we refer to above asked respondents if they think they’re doing a good job of preparing financially for their retirement. Only 23% said yes, a chilling figure that shows that nearly 80% don’t have any plans in place for the day that they’re no longer working. Simply put, unless you make a plan for retirement, put it into effect and diligently keep up with it throughout your adult life, there’s no way you’ll ever have enough to retire comfortably and may be in serious trouble when the day finally arrives.
- Starting to put money aside too late. This one’s quite simple and straightforward. The earlier that you start saving for retirement, the better chance that you’ll be able to retire comfortably.
- Failure to take advantage of your 401(k) account is a huge mistake that many people make. The fact is, contributions to your 401(k) are taken out of your pain before taxes are taken out, meaning that any money in your 401(k) will be taxed, at least until you retire. Not only that but, since many employers have a 401(k) matching program, if you aren’t putting in the full amount allowed by law you’re actually leaving money on the table.
- Not understanding the risks of your investments. Investing comes with risks but not investing because of these risks is probably the worse of the two evils. Frankly, without any type of investment to possibly accrue and make money for you you’re missing out on a potent retirement opportunity. Of course there is also the other side of that coin which is taking on too much investment risk. If, for example, you have an overly aggressive retirement plan that’s loaded with high-risk stocks it’s quite possible that you end up losing a huge chunk of your retirement nest egg before you retire.
- Relying much too heavily on Social Security is a mistake that many people make. The fact is, most financial experts believe that Social Security is going to dry up in the next 10 to 20 years and, even if it doesn’t, in most cases it’s not going to be enough to cover even minimal cost of living expenses that the average retired person has.
- Did you know that the average retired person spends more on their health care costs than they do on food? It’s true and underestimating these health care costs is a huge mistake. It’s estimated that the average retired couple in 2013 will need $220,000 per year to cover their health care costs, a number that doesn’t even include long-term care if necessary.
- Borrowing from your 401(k) to purchase a new home or car is a huge mistake as well. In most cases the average person who uses money from your 401(k) will never be able to put back the same amount of money and, even worse, will lose out on the extra interest that would have been made if that money was borrowed in the first place.
- Lastly, a big mistake that many people make is to cash out their 401(k) too early. If you do this not only will you owe taxes on any money that you take an early but shall also be subject to a penalty fee of 10%. Experts will tell you that it’s far better to roll your 401(k) into an IRA in order to stay tax-free and let that money continue to create and accrue interest.
Retirement planning is a vital part of any financial planning. If you have questions or concerns about your retirement or any other financial concerns, please let us know and we’ll make sure to get back to you with answers ASAP. In the meantime, we hope that the 8 mistakes that we outlined above have helped open your eyes (or at least given that you some keen insights) and we wish you the best of luck with all of your retirement planning.