When you’re counting down to retirement, it’s easy to get caught up in fantasies of your future work-free life. Maybe it’s RV trips to Florida, days on the golf course or quality time spent with family. Whatever your dream retirement looks like, you can be sure you’ll need money to fund it. Unfortunately, if you’re like most Americans, you don’t have nearly enough saved for retirement. But you can help change that with a few key fixes. Consider working with a financial advisor as you create or update a retirement plan.
1. Not Taking Advantage of Higher Interest Rates
When’s the last time you checked your savings account interest rates? If you can’t remember when, or even how much money you have stashed away, it’s probably time to do a little self-audit.
According to the FDIC, the national average interest rate on savings accounts stands at 0.37% APY (as of Mar. 20, 2023). This applies to both average and jumbo deposits, which are accounts with a balance over $100,000.
That said, as of March 2023 you can find savings rates as high as 4.25% (Citizens). Moving your money to an account with higher interest is one of the simplest ways to earn effortless interest. Think about it this way: If you have $5,000 sitting in an account earning 0.06% interest, you’d earn about $30 annually. By contrast an account with 4.25% interest would earn you roughly $212 annually. That’s without any additional deposits and for just one year. After a few years, the returns would really add up.
2. Neglecting Your Health
You don’t want to reach retirement age just to find yourself in the hospital. Unfortunately, it’s a more common scenario than you’d think. Eighty percent of older adults have at least one chronic disease and 77% have two or more, according to the National Council on Aging. Another sobering statistic: 90% of Americans ages 55 and over are at risk for high blood pressure, a disease that’s preventable through lifestyle choices. You can improve your health with every choice you make. The food you eat, the exercise habits you start (or rekindle) all can help contribute to a happier and healthier retirement. Remember, healthcare costs are likely to increase as you get older.
Why not do the best you can to minimize those costs and improve your health?
3. Not Getting Financial Advice From an Expert
Once you’re within 10 years of retirement, you should take retirement planning seriously. Don’t just read a few personal finance books and think you’re good to go (though that’s a start). It’s probably time to turn to an expert. Someone who’s knowledgeable about navigating the transition from workforce to retirement can be invaluable.
That might mean finding a financial advisor to help you map out your golden years. Financial advisors can help you figure out how much you’ll need to retire comfortably, advise you how to invest your assets, give you options on how to fund your children’s education as well as tax plan, estate plan and more. We turn to experts for healthcare, car maintenance, education and all other important aspects of our lives, why not find the person best suited to help us with retirement finances?
4. Not Using the Company Retirement Plan
The retirement savings option that’s often overlooked is the one right under your nose: your 401(k). For nonprofit employees, it’s your 403(b) and for government or military personnel, it’s your thrift savings plan (TSP). These work-sponsored options are a great way to lower your taxable income and an ideal way to sock away cash. When your employer matches your contributions, it’s doubly worthwhile for you to take advantage of the account. Even if your company only matches a small percentage, it’s still free money.
Most plans allow you to elect for an automatic deduction from your paycheck. This saves you the effort of transferring money when you remember or find time. Anything you can automate can help make retirement savings effortless. The less you have to think about it the better.
5. Borrowing Against Retirement
While it might seem like a good idea at the time, borrowing from your retirement fund will set you back, often for longer than you may expect. There are other ways to fund a child’s college education or to cover the cost of a home repair than taking money out of your IRA or 401(k). Maybe it’s taking out a low interest loan or using a no interest credit card or an alternate option. Regardless, your retirement fund should be the absolute last resort.
Once you dip into retirement money it can be a slippery slope to repaying it and getting your investments back on track. You only get the benefits of compounding interest through time. Each time you take money out, you’re setting yourself back. It’s worth exploring other options before you borrow against your future.
Planning for retirement comes with several risks, and ignoring those risks can lead to a number of mistakes. Make sure you plan for a long life, high inflation and high interest rates. Adjust your asset allocation at least annually and adopt a healthy lifestyle.
- Working with an expert financial advisor is one of the best ways to get your retirement on track and achieve peace of mind. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Our retirement calculator will help you determine how much you need to save for retirement.
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