Financial well-being March 14, 2023 By
In the prime of your career? Here are the six mistakes to avoid now for a better retirement later.
Retirement seems a long way off if you're in your 30s, 40s or 50s. Your financial decisions will determine when you can retire and how much money you'll have. You may have yet to start saving, already have a sizeable nest egg, or be somewhere in between. Let's look at six retirement savings mistakes to avoid now so you can plan for a comfortable retirement later.
- Putting Off Saving for Retirement
- Earlier in your career, it is easy to ignore retirement planning. You have many competing financial interests between raising kids, taking vacations, and advancing your career. However, if you wait until you are ready to focus on retirement, you will lose out on years of compound interest you could be accumulating. The interest your money earns each year adds onto the principal investment, so the next year you make interest on that interest, compounding your savings.
- Not Taking Advantage of Your Employer Matching 401(k) Contributions
- Many employers offer a 401(k) plan. This retirement savings account is an excellent way to invest pre-tax money for your retirement. As an incentive to save, employers often offer matching funds. Taking advantage of this free money from your employer to help grow your retirement nest egg is a good idea. If your employer does not offer a 401(k) retirement benefit, you can open a traditional or Roth IRA. Either way, you can have a tax-advantaged retirement account.
- Using Retirement Funds to Pay for a Home
- You can borrow money from your 401(k) retirement account to buy a house. Although you may be able to withdraw up to $10,000 from your retirement account without tax penalty as a first-time home buyer, this plan still has costs. The withdrawal may be considered a loan you must repay, which could be difficult while paying a mortgage. Plus, that loan could stunt the growth of your retirement savings.
- Putting Your Kids’ College Education Ahead of Saving for Retirement
- Dipping into your retirement savings to send your kids to college might be tempting. But making this move could stagnate your retirement savings. Student loan programs could be a better option that will not compromise your retirement nest egg.
- Losing Track of Your Accounts
- Ideally, retirement saving is a long-term strategy you begin when you are young. Over time you might get married, change jobs, have children, and adjust your retirement savings plan. It is easy to lose track of your accounts, which is the first step in losing money. Consolidate any old 401(k) or other retirement accounts as much as possible, weighing the benefits of the different available plans. If appropriate, move money in nonretirement accounts into a retirement plan.
- Choosing Unwise Investments
- Many tools are available to make self-directed investing a viable option for almost anyone. The key is to make wise investments that grow your retirement savings rather than deplete them. Trying to pick individual stocks and buy and sell at the right time to make significant gains is not a wise investment strategy. Everyone seems to have an investment tip or favorite stock to pass along but relying on word-of mouth investment ideas is not advisable. In addition, pay attention to fees charged and the performance of actively managed funds. Paying high fees for poorly performing managed funds is also an unwise investment.
Don't worry if you just started saving for retirement. Since Social Security was introduced, every generation's average retirement age has increased. People are living longer, working longer, and even enjoying second careers. Planning to retire in your late 60s or even early 70s gives you more time to build your retirement nest egg.
Saving for retirement is a long-term financial strategy. The best retirement saving decisions result in slow and steady financial growth. It is a good idea to periodically check in with a financial advisor to initiate and review your retirement savings and investment plan. Contact a First United Bank relationship banker for guidance if you need help finding a financial advisor.
To learn more about resources to help you plan for retirement, we are here to help you.