One of the biggest mistakes is not starting early enough. Many are putting off retirement to splurge in their youth, leaving less money to splurge or even make ends meet in retirement. The problem is that the longer you wait, the less time you have to save and invest. Your money can't grow if you don't plant the seed.
Fortunately, with compound interest, starting even 10 years earlier can make a massive difference, but the longer you put off saving, the more work you'll have to put in later. If you’ve started late, it won't be the end of the world; you just have to start saving now.
Many in the workforce are avoiding retirement savings, assuming that Social Security will cover all their needs in the future. They are sorely mistaken, and they'll be in for a rude awakening in the future, and by then, it may be too late.
When it comes to Social Security, you only get what you give, and even then, it isn’t guaranteed to cover all your retirement expenses. It's designed to merely supplement your other sources of retirement income. You won't have nearly enough to get by on Social Security alone.
It's best not to think of your paycheck as an allowance. Living paycheck to paycheck and throwing it all away on some cheap experiences and meaningless things will not get you anywhere. They might bring you happiness in the moment, but when you get to retirement age, you'll regret all of it.
Work on creating a budget and trimming unnecessary expenses so you can stash away at least 10-15% of your income for retirement. It's okay to treat yourself occasionally, but be somewhat strict with yourself. All of the little things, like those morning Starbucks coffees, add up over time. Don't gamble away your future to live in the moment.
Never ignore your employer's 401(k) match. It's basically free money for retirement, and it would be foolish to do so. Whatever your employer's maximum match is, you should contribute at least that percentage to get it. Even if you can't afford to contribute the maximum, try to increase your contribution gradually until you reach that level.
Your 401(k) plan is among your biggest retirement assets. A 401(k) match is essentially a raise that goes directly towards your retirement savings. It's also worth noting that contributions to a traditional 401(k) are tax-deferred, meaning you won't pay taxes on them until you withdraw the money in retirement.
High-interest debt can cause the most devastation to retirement savings. Everything you pay in interest is money lost from retirement. Credit card debt, in particular, tends to spiral out of control for many people, and all that interest adds up quickly. It's the biggest burden you could possibly carry, financially speaking.
Debt should always be paid off as quickly as possible because the longer you wait, the more interest you will accrue, which is money wasted. If you are struggling to pay off credit card debt, you are spending more money than you actually earn, which you should avoid at all costs. Credit card companies don't care about your retirement; only you can do that.
Borrowing from your 401(k) might seem tempting, but it stunts your account’s growth. It might seem harmless to do once if you have every intention of putting it back, but think of it like lending money to that friend or family member who keeps asking. Eventually, you'll make it an unhealthy and detrimental habit.
If that doesn't scare you enough, consider that if you lose your job, you might need to pay it back immediately or face hefty penalties. The best thing you can do is consider all the money you put into your 401(k) as not yours anymore; it's money for your future self.
One of the biggest investing no-nos you'll hear about constantly is the idea of putting all of your eggs in one basket. When it comes to investing, there's nothing more crucial than diversifying your investments. There's no single safe investment for you to do this. It's setting yourself up for failure.
On the same note, you don't want to invest all your money in one type of investment, either. A diversified portfolio helps protect your savings from huge losses when the market fluctuates. This is basic investing knowledge, but you'd be surprised how many ignore it.
Healthcare costs are one of those devious things that sneak up on you when you least expect them, and they only get worse as you age, and you do expect them. It's always important to put money aside, whether in an emergency fund or a health savings account, to plan for the unexpected.
Even if you're perfectly healthy now, medical issues will arise in old age and the wisest thing for you to do now is keep your retirement fund padded for the future. Don't just think about food and house, think about medical expenses, because they are very real and they can become exceedingly overwhelming when you're living on a finite income.
Lifestyle inflation can creep up on you as you earn more. The excitement of earning more money tends to make even the most frugal a little more relaxed with their money. Instead of spending away every raise or Christmas bonus, boost your retirement contributions to save more as you make more.
Got a hefty tax return this year? Save it or invest it. If you invest, you have more growing potential for retirement. If you save it for emergencies, it'll be money you won't interfere with your investing later on.
Never dip into your retirement only to spend it on luxuries. Consider that luxuries are everything that you don't need - extra clothes, an upgraded phone, a night out, a vacation, etc. While these things may bring temporary joy and satisfaction, they will not provide long-term security and stability in your retirement years. And before you ask, no, Black Friday sales events are not emergencies either.
Your retirement savings should be treated as a sacred nest egg that is meant to support you during your later years when you no longer have the same earning potential. It's important to prioritize your expenses and use your retirement funds only for essential needs such as housing, healthcare, and basic living expenses.
Throwing your money at retirement is not enough. It's equally important to monitor your retirement savings. You can't just hope for the best. You need to be an active participant in managing your investments and make changes as needed.
If your money is growing, that may mean it's time to invest more. If you're losing money, you may need to change what you are investing in. Ensure you are staying on track and check on your investments regularly—at least annually.
You can't just throw cash under the mattress and call it a day. And, no, putting it in a safe doesn't make it any better. Thanks to that unpleasant little word inflation, all the cash you have now inevitably becomes worth much less in the future.
As the value of money erodes over time, the only way to make your money grow is to invest it. If you really want something to put in your safe, at least invest in gold, and then you can put that in there. You're welcome.
In the words of the illustrious Ferris Bueller, “Life moves pretty fast." Just because you might have several decades left before you can retire, doesn't mean you can just "think about it tomorrow" like Scarlett O'Hara.
Before you know it, years have passed, and you’re behind. Instead of procrastinating, create a plan today. Planning for retirement should happen the moment you start working. It might just be a little amount at first, but gradually, as you earn more money, you'll find it easier to put more and more of it away.
When planning for retirement, you need to consider not only what things cost now, but how much things may cost in the future. While it may be impossible to predict the exact amount 20 or 30 years from now, you need to give yourself a decent buffer when saving.
Inflation refers to the general increase in prices for goods and services over time. This means that the same amount of money you have now will be worth less in the future, because it won't be enough to buy the same things. For example, a loaf of bread may cost $4 now, but due to inflation, it could cost $8 or more in 20 years.
If the subject of retirement seems overwhelming, you're not alone. But that's why financial advisors are a thing in the first place. Needing financial advice is not a weakness. Financial advisors are a tool to help you determine and achieve your goals beyond "I want to retire in Miami." Financial advisors will tell you how to get there and what costly mistakes to avoid along your journey.
If you haven't started saving for retirement, with the help of an advisor, it's not too late. It might mean you have more work to do now, but that's okay. Retirement may come sooner than you think and you must be ready for it.
