Wanting a financially sound retirement and actually achieving it are two different things. Without a solid plan for reaching your retirement goals, your golden years could end up being somewhat tarnished. Securing your financial future is all about making the right choices. If you find yourself doing any of the following, you could be sabotaging your retirement dreams without even realizing it.
Find out now: How much should I save for retirement?
1. Waiting to Start Saving
Thinking you have plenty of time to start saving for retirement is one of the most common–and most dangerous–mistakes you can make. It’s never too early to start socking away cash. The longer you wait, the more you increase the possibility of not having enough saved to see you through once you leave the workforce behind.
2. Thinking You Can’t Afford It
Having an all-or-nothing mindset about saving for retirement can be a major obstacle to your goals, especially if it’s keeping you from getting started at all. Thinking that you can’t afford to put away anything is a surefire way to guarantee that you’ll be working long into your old age. Even if you can’t afford to max out your contributions each year, you should make an effort to put something away towards your retirement on a regular basis.
If you’re eligible to participate in a retirement plan through your job, start putting away 1% of your salary each pay period. Chances are, you won’t even miss the money and you may be able to score some free cash if there’s a company match. If your employer doesn’t offer a retirement plan, consider chipping in a few bucks each month to a tax-advantaged IRA. Over time, you should see those small contributions start to add up.
3. Underestimating Your Needs
When you’re planning your retirement strategy, you need to make sure that you’re saving enough to fund the kind of lifestyle you want to have. Obviously, the more extravagant your plans are, the more money you’re going to need. Underestimating what your retirement is going to cost can spell financial disaster if you come up short.
Related Article: How Much Should You Have in Your 401(k) to Retire?
Some of the things you may want to think about include the cost of basic necessities like food and shelter; your medical costs; travel expenses if you plan to do some sightseeing; whether or not you want to make charitable donations or gift money to family members; and how long you plan to work. Picking a number out of thin air as a goal isn’t realistic and it could potentially backfire big time.
4. Borrowing Against Your Savings
The whole point of putting money into a retirement account is to build your nest egg but it’s impossible to do that if you don’t leave it alone. Even if you’re taking out a loan that you’re planning to repay, you’re still cheating yourself out of the interest the money would have earned if you had left it in the account in the first place.
Borrowing against your retirement or taking money out of your account early is also a bad idea because of the potential tax implications. If you borrow from your 401(k) and leave your job with the loan outstanding, the entire balance will be due and you’ll have to report the money as taxable income. If you’re taking money out of an IRA, you may have to pay taxes on the money along with an early withdrawal penalty.
5. Putting Your Kids First
With student loan debt soaring to astronomical highs, it’s natural for parents to want to help remove some of the financial burden of getting an education. While it’s okay to want to contribute something, fattening up your child’s college fund while neglecting your own retirement savings is a serious form of self-sabotage.
Borrowing money to pay for school isn’t ideal, but borrowing isn’t an option when it comes to your retirement. You may think you’re doing your child a favor by paying for their education but you could be doing serious financial damage to yourself in the long run.
Saving for your future should be a top priority, especially if you have yet to get started. Knowing what you should and shouldn’t be doing can help you keep your retirement plan on solid ground. Follow these tips to avoid sabotaging your retirement.
Related Article: 4 Tips for Talking Retirement With Your Spouse
Photo Credit: ©iStock.com/amriphoto, ©iStock.com/mbbirdy, ©iStock.com/PamelaJoeMcFarlane