4 Mistakes That Can Destroy Your Retirement
A lack of savings is not the only thing preventing a comfortable retirement. Regardless of your funds, there are some mistakes people make that destroy their retirement plans from the get-go. Avoid these four pitfalls so you don’t destroy your peaceful retirement.
Early Withdrawal Penalties
There quite a few penalties and rules when taking money from your retirement account before a particular age. It’s important that you know those rules if you want to maintain your retirement plan. If you choose to withdraw from your 401(k) or IRA before age 59½, there is an early withdrawal penalty. Usually, you need to include that in your gross income and will pay another 10% tax penalty. But there are some loopholes to these withdrawal penalties. Discuss this with your adviser before taking money out of your retirement account early.
Not Getting Employer Match
A new survey reveals that around one-third of people are not investing enough into their company-sponsored retirement options to get the complete match from their employer. The value of this missed match is around $750 each year. That might not sound like much, but it can lead to missing out on $100,000 in missed savings during the entire length of your career. Check with your HR department to guarantee you are getting your complete match. And if not, set a goal to increase your contributions to match your employer’s threshold. You need to grab hold of this free money.
High Fees On Investments
It is vital to know exactly what you are being charged for your investments. Fees that seem small, like 2%, can carve up your savings over decades. Those costs compound just like your returns do. That means you are losing money in the fees, but also on the growth those dollars could have had. As an example: Say you have a retirement account with $100,000 in it and zero fees, and the account gets a 6% return every year for 25 years, that leads you to $430,000. Now let’s calculate that same account with a 2% cost each year for the same period; that leads you to just $260,000. That tiny number destroys almost half of your value. This is why you must know about investment costs if your retirement is going to be successful.
Not Caring About Compound Interest
Compounding is exactly why everyone should start saving early. On a very foundational level, compounding interest is earning upon interest. When savers ignore the incredible power of compound interest, they are ignoring the potential to grow their retirement funds faster. If you begin with $5,000 every year at age 25, you would be at $1.3 million at age 65, this is with a 8% return. But if you waited for age 35 to do the same thing, your savings would be sliced by 50%. Timing is vital for allowing compound interest to work on your behalf, and that’s why you need to plan long-term when thinking about retirement.
How To Stay On Course?
Many folks think they can create their own retirement, that may work if you are in your 20s. But the closer you are to retirement, the more vital it is to have a comprehensive plan to keep you on course. The issue is, only one in five people have a on-paper plan for retirement. Your retirement is more than just how much you have in savings. It takes a comprehensive plan to get you through a comfortable retirement. Your complete goal should be to have a plan that includes strategies for health care, Social Security, and taxes during retirement. That is the only way to retire without worry. So sit down with an adviser and discuss your goals. The two of you can create a comprehensive plan to help meet all your retirement goals.