You know itâ€™s not always a lack of savings that keeps people from enjoying a great retirement. Despite having a nice nest egg, people can make some common mistakes that mess up their retirement plans.
Kiplingerâ€™s recent article entitled â€œAvoid These 4 Mistakes That Often Derail Retirement Plansâ€ advises you to avoid these four mistakes, so you donâ€™t wreck your golden years.
Early Withdrawal Penalties. Itâ€™s critical that you know the rules of your retirement plans, if you want to keep the plan on track. If you want to tap into your IRA or 401(k) before age 59Â½, youâ€™ll have an early withdrawal penalty. Youâ€™ll also have to add that money in your gross income for the year and pay an additional 10% tax penalty. There are a few exceptions to early withdrawal penalties.
Forgetting about your Employer Match. A recent survey found that roughly a third of workers donâ€™t contribute enough to their 401(k) or employer-sponsored retirement plan to get the full match from their employer. The value of this oversight is about $750 each year. That itself can add up to almost $100,000 in missed retirement savings over the course of your career. Retirement savers need to leverage this free money at work.
Paying High Investment Fees. Figure out how much youâ€™re paying for your investments. Investment costs that may sound tinyâ€”perhaps 2%â€”can chip away at your savings over time. These fees compound along with your returns, so youâ€™re losing the growth that money could have had.
Missing Out on Compound Interest. Compounding is one of the best rationales for saving early. On a very basic level, compound interest is earning or charging interest on top of interest. When retirement savers arenâ€™t aware of the value of compound interest, theyâ€™re missing out on growing their money more quickly. Time is critical when allowing compound interest to work for you, and thatâ€™s why you should think long-term, when saving for retirement.
Many people think they can plan for retirement alone. However, the closer you get to retirement, the more crucial it is that you have a sound plan that will keep you on track. However, only one in five people has a written plan for retirement.
A comprehensive plan will help get you to and through your later years. Your comprehensive plan should include strategies to pay for health care and a plan for claiming Social Security, as well as strategies to be tax efficient in retirement and leave a legacy for your family.
Reference: Kiplinger (Jan. 29, 2020) â€œAvoid These 4 Mistakes That Often Derail Retirement Plansâ€
Suggested Key Terms: Retirement Planning, Financial Planning, IRA, 401(k)