For many of us, retirement is a big afterthought. We feel like we are young enough that we can start saving once we have a little more money. We must not think this way because there are plenty of things that we do everyday that can have an affect on our retirement nest egg. If we do not have retirement in our minds when we are young we may never begin to start making the right choices to be financially independent by the time we hit retirement.
While retirement is for those who are at least 62 and older, no matter what your age, you can sabotage your retirement financial independence by making crucial mistakes before you get to retirement. These are but a few of the mistakes that you may regret making when it comes to being financially independent by retirement.
Not saving at all in a retirement account
It is easier to put off saving. Saving money can make it harder to pay bills and anything else you may be wanting to buy or spend money on. The problem with putting off saving is that it actually makes things A LOT harder down the road when you want to start saving. Regardless, it probably will never be easy to start saving for retirement. The thing is, the earlier you start saving the more compound interest you can accrue and that is huge! Compound interest can be your greatest friend when saving and investing but can also be your greatest enemy when borrowing money. Learn more about compounded interest here…. 10 Things You Need to Know About Compound Interest. In order to make saving for your retirement work now you need to budget for it from the beginning. The more automated you can get with your retirement savings the more likely you are to actually save. For instance, automatically withdwrawing $100.00 (or whatever you can budget) from your checking account the day you get paid and having that transferred into a retirement account for investing is one of your best chances for making this work!
Roth IRA Withdrawals
Roth IRAs can be a great vehicle for retirement saving because the money grows tax-free. There are plenty of reasons why retirement experts love Roth IRAs, one reason in particular is their flexible way for withdrawals before retirement. For instance, if you were planning on using the money for a first time home buy, you can withdraw up to $10,000. You can also use Roth IRAs for unforeseeable expenses. How does this work? Five years after any contribution you can withdraw the principle without any penalty. While this is a benefit and security blanket for those saving in a Roth IRA, the truth is, any withdraw from your retirement accounts now hurts you of the compound interest and funds down the line.
Not Planning for the extra mile
There are so many variables that can happen when in retirement and even before retirement. Because there are so many variables to how much money we are actually going to need in retirement you must plan for the extra mile. You really don’t know how long you are going to live, yes it could be less than you plan for, but it could also be more than you plan for. For that very reason alone you will want to plan a little longer than you expect. You also don’t know how healthy you are going to be. While in retirement you tend to have a lot more health costs because things aren’t as good as they once were. If by chance a major health issue comes up you will need extra in your nest egg to be able to pay for the health issue and still have enough to go throughout your whole retirement. The idea here is to plan for more than what you expect because you never know.
Do you know what you will be making in 10 years? How about how much you’ll be spending or how your retirement investments are doing? Because of this you have to be adaptable while in retirement. One of the keys to adapting is to stay up on the changes that come upon you or your retirement nest egg. The best way to do this is to check your retirement plan on a yearly basis and adapt for any potential issues. This is a very important step and if you don’t adapt your retirement nest egg most likely won’t be what you need it to be when you arrive at retirement.
These are just a few of the things that you’ll want to make sure you aren’t doing. In fact, if you can do just the opposite of these pitfalls your retirement plan and nest egg should look pretty good by the time you get to retirement.
Author: Nick Barker