Are you making the same retirement mistakes as most people? If so, this article is for you. It’s clear that there is a lot of financial education needed specifically regarding planning for retirement. One report from the US Government Accountability Office (GAO) states that 29% of households with someone working that’s 55 years of age or older don’t have retirement savings. Ouch! Hopefully, this article will give you some advice to avoid a few common retirement mistakes.
1. Not Saving as Soon as Possible
It’s important to start saving for retirement as soon as possible — preferably in your late teens or early 20s. However, it’s better to start saving now than later or never. Compound interest is great when applied to your investments early on. Indeed, it allows your money to make more money by collecting interest on top of the amount invested.
But when applied late in life, compound interest works against you. It causes small returns over long periods of time to become large sums of money due to compounding growth over time. For example, $10,000 invested at 7% compounded monthly will grow into $115,061.68 after 35 years!
2. Retirement Mistakes Include Not Having a Plan B
This one’s especially true if you’re self-employed. No matter how much money you make, people can lose their jobs at any time or have other problems arise that force them to close shop (no pun intended).
You need to have a plan B in place so that when those times come along, you don’t have to worry about where your next paycheck will come from or whether your company will survive another week or month without an infusion of cash from somewhere else.
3. Paying too Much in Taxes
Tax-deferred retirement accounts like IRAs and 401(k)s can help you save for your golden years. However, if you don’t use all the money that you put into them, it’ll be taxed as ordinary income when you withdraw the funds. To avoid paying more in taxes than necessary and to make sure that you’re receiving the maximum benefit from your tax-deferred savings plan, make sure to take advantage of any tax deductions or credits that apply to your situation.
4. Withdrawing Money From Tax-Advantaged Savings Accounts Early
Most people are familiar with the concept of compound interest and how it can help you grow your savings over time. However, most people don’t understand that the process works in reverse as well. If you withdraw money early from a tax-advantaged account like a 401(k) or an IRA, you pay taxes on your earnings. Then, you are hit with the 10% early withdrawal penalty if you’re under 59 1/2 years old.
The best way to avoid this mistake is to make sure that you never tap into these accounts until after age 59 1/2 (unless there’s an emergency). If your employer offers a 401(k) match, then take advantage of that match first before taking any other withdrawals from your account!
5. Retirement Mistakes Include Not Planning for Extra Costs
You may have heard that retirees spend 15% of their annual expenses on healthcare-related products and services. That’s because original Medicare (Part A and Part B) only covers 80% of your healthcare costs. Further, it doesn’t cover many things like dental, vision, and hearing. Plus, if you get sick later in life, you could be facing much higher costs for drugs and treatments.
The good news is that there are solutions to this problem. For example, supplemental insurance policies that cover the gaps in Medicare coverage. If you don’t take these extra steps, though, you may find yourself struggling with high medical bills.
Contact Us for Your Retirement Planning Needs
Are you looking for professional, experienced, and dedicated retirement planning services? As you plan for your retirement, let Roberts Tax and Retirement Planning help guide you down the right path. We’re ready to answer any questions you may have along the way, so contact us today!
We look forward to helping you begin your retirement years with a level of financial security that many don’t reach until far later in life.