Have you ever wondered “Will I have enough saved for retirement?” or “Can I afford the retirement lifestyle I want?” Maybe, you have thought, “What would happen if I outlived my money?” These are legitimate questions that people ask themselves as they prepare for retirement. I know that I asked myself these same questions many times.
Are you ready for retirement? I learned through my years of teaching about finances that individuals do not plan properly for retirement. Most make mistakes when it comes to retirement readiness. These common mistakes cause individuals to work longer, depend on social security, or receive assistance from children. What are these mistakes?
- Failure to begin saving early.
- Failure to save enough.
- Failure to stay invested for the long term.
- Failure to diversify your portfolio.
- Failure to match 100% of employer’s contributions.
- Failure to reduce the impact of taxes.
- Failure to outpace inflation.
Which ones resonate with you? Not saving early at the beginning of one’s career and not saving enough are the main reasons for the prolongment of retirement until age 70 or beyond. Failure to match employer’s contributions is one of those mistakes where money is left on the table. This hurts your readiness. I do not know about you, but my Momma told me never to leave money on the table, take it off the table. Employer contributions are free, easy money! For example, if your salary is $60,000 and your employer matches up to 6% per year, that is $3600 FREE dollars from your employer. Therefore, your goal is to contribute $3600 to receive the employer’s match of $3600. That is a total of $7200 per year. Imagine $7200 per year earning an average of 8% for 30 years. That is a whopping $818,000!! Without the employer’s match, it is $410,000. Which amount would you rather have in your account for retirement?
Retirement readiness can also be derailed by some overlooked risks. There is market risk, but the most common risk is borrowing from your retirement account. The major reasons for borrowing from one’s retirement plan is to supplement or replace income. Borrowing from a retirement account is expensive because of the loss of compound interest and double taxation. Compound interest is the addition of interest to the principal sum of a deposit. Therefore, you lose the addition of interest on the amount that you borrowed and do not forget the 10% penalty for early withdrawal and the 20% tax withholding. The double taxation is when you repay the loan with after tax dollars, and it is taxed again during retirement. Withdrawing money from your retirement account has a lasting negative impact on retirement readiness.
The bottom line is to not let common mistakes and risks prevent you from having enough money saved to live the life you desire in retirement. You can avoid them by making the smart money move to work with a financial professional to help you maximize the growth and safety of your money to enjoy the retirement that you envision. We are here to help you. Contact us for a complimentary consultation at daly.cynthia@canfinancial.biz or www.canfinancial.biz.