Saving for retirement can be confusing and scary. But you can eliminate much of the worry by avoiding the common retirement planning mistakes people make.
Following are seven mistakes to avoiding when drawing the financial map for your golden years.
1. Failing to plan
Failing to plan is one of the biggest mistakes you can make. If you don’t have a plan, spend a weekend hashing one out. Here are some questions to ask yourself:
- What do I want to do in retirement? Should I save for travel or hobbies?
- How much will I need to cover my expenses?
- How much do I have saved now?
- What is my goal amount?
- How much will I need to reach my goal?
- How much should I put aside a month to get there?
This year is almost over, but it’s not too late to learn from the tips in “Ready to Rescue Your Retirement in 2018? Here’s How.”
2. Starting too late
I started saving for my retirement at age 18 because my parents convinced me to sign up for my company’s 401(k) plan. At the time, it was just a few bucks a month. But that seed money has had time to grow. If I’d started now, I would have missed out on many years of compound interest.
Bottom line: The sooner you start saving, the bigger your pot of money will be when you’re ready to quit work.
3. Not taking advantage of 401(k) plans
If your company offers a 401(k) plan and you’re not contributing, you’re making a huge mistake. Contributions to your 401(k) come out of your paycheck before taxes, meaning it’s a portion of your income that you won’t pay taxes on now. And many employers have a match program, meaning they’ll match your contributions up to a certain percentage. In essence, that is free money.
Talk to your human resources office about your company’s 401(k) plan and sign up ASAP. Then, read “7 Tips for Stress-Free 401(k) Investing.”
4. Not understanding the risks
Stocks come with risks. But if that’s causing you to shy away from investing entirely, you’re depriving your retirement account of an opportunity to grow. On the flip side, you could be taking on too much risk. If you have an aggressive retirement plan loaded with high-risk stocks, you might end up losing a big chunk right before you retire.
As we report in “8 Basics That Beginning Investors Must Know“:
Money Talks News founder Stacy Johnson suggests you subtract your age from 100, and put the difference as a percentage of your savings into stocks. For example, keep the following percentages of savings in stocks:
- 60 percent if you are 40
- 50 percent if you are 50
- 40 percent if you are 60
5. Relying on Social Security
If you’re relying on Social Security to keep you solvent in your golden years, you might be setting yourself up for disaster. Use the Social Security Administration’s Retirement Estimator to see an estimate of your Social Security benefits.
Odds are, it won’t be enough. In September, the average Social Security benefit was $1,371.62, according to the Social Security Administration.