How to Avoid Common Retirement Mistakes

Don’t Prematurely Blow Retirement Savings

I actually had to talk my husband out of this when he changed jobs three years ago. He wanted to cash out and pay off our vehicles. This is common when people switch jobs. A research report by Hewitt Associates found that 60% of workers in their 20’s will withdraw their retirement savings early. Decisions have to be made whether to roll the 401(k) into an IRA or cash out. It is tempting to splurge on something that you want or pay off existing bills when you see that 10,15,20 plus years worth of savings at your fingers. However, blowing your retirement savings now will cost you big time. Taking a 401(k) distribution of $5,000 at age 25, instead of letting it earn 7% for the next 40 years, is like kissing $70, 000 goodbye. On top of that you will pay about half of that $5,000 toward taxes and early withdrawal penalty.

Don’t Wait To Save

Save early and save habitually. Procrastination is just as bad as blowing the retirement savings. Putting 3,000 dollars a year for 10 years in a tax deferred retirement account at age 25 vs. 35 is almost a 100,000 dollar difference. The prevalence of payroll deductions have made it easy for employees to start saving early. If you do not have a payroll deduction available to you, then contribute early and habitually to a tax-advantaged IRA.

 Don’t Turn Down Free Money

If your employer has a 401 (k) matching plan, then take advantage of that free money. Company matches  range depending on the employer. It can be a percentage of your salary to dollar for dollar  matching.  The important thing is that you contribute enough to get that match.

Don’t Just Save Without A Goal

If you do not figure out what it will take for you to live your desired life style, then most likely you are under contributing and will find yourself falling short after retirement. The Employee Benefit Research Institute estimates that less than half of workers have calculated how much money it will take to maintain their desired lifestyle. One of the most import things in figuring out your “magic number” is what age you plan to retire. If you have health, family, etc.. issues where you know that you will most likely retire early, then you need to plan to put away even more money than normal. For example, retiring just five years early will not only cut your 401 (k) off early, but it will also reduce your SS benefits by around 30%.

Don’t Forget About Health Care Costs

No one knows what health issues they face in the future. Let’s face it we don’t always just go peacefully into the night. Fidelity estimates that the cost of retirees’ health care could be as much as $250,000. Do not depend on Medicare and Social Security. There is a serious overestimation of what these will cover.

Don’t Ignore Your Investments

Would you invest your money in a car and then not bother to rotate the tires, change the oil, etc.. ? Hopefully not, but your retirement assets require maintenance just like any other investment you make. You should do a yearly risk review and rebalancing of your investments. This allows you to reallocate your assets and tune up your retirement accounts to your comfort level.