SRetirement is one of those pursuits that’s hard to understand. Because how many other life milestones take decades to bear fruit? However, with so much time and preparation going into it, it’s especially important to be careful to avoid the biggest retirement planning mistakes financial planners make all the time.
A widely accepted guideline for general retirement planning is to at least get bogged down 15 percent of your paycheck before–VAT. For example, someone making $60,000 a year (or $5,000 a month) should theoretically be saving about $750 a month.
But this plan doesn’t take into account the nuances of real life or the financial demands that come with it, including the cost of living in your city, how many children you have, and major expenses — and those numbers can add up even in retirement. “[M]Most people will retire for at least a decade,” he says Emily GreenDirector of Private Wealth at elf, an investment platform for women. “TThat means a decade — or more — of everyday expenses, medical bills, and living your best life in retirement.”
In short: How much money you save for the future depends on many factors. But to ensure you’re comfortable in that decade or more of after-work bliss, it pays (literally) to avoid some all-too-common retirement planning mistakes that pundits see all too often. Below, green and Alan Bensoninvestment spokesman Personal finance company NerdWallettell you what not to do in your quest to financially support yourself in the distant future.
5 retirement planning mistakes that experts say should be avoided
Mistake 1: You don’t start planning because you think you’re not making enough money
If you tell yourself that after your next raise, you’ll start contributing to your 401(k), Benson wants you to think again. “Even if you have a low income, you should think about retirement. If you save some money, even if it’s just a small amount, you can really benefit in the long run,” she says. Thanks to a little thing called compound interest, or Get a return on the money investedeven saving $50 a month could mean a lot in the long run.
“If you save some money, even if it’s just a small amount, it can really benefit you in the long run.” —Alana Benson, NerdWallet
For example, Let’s say you originally invested $100 and deposited $50 per month in an investment account that yielded a 12 percent return. Within a decade you would have saved about $12,000 (which means you’ve earned about $5,800 in interest). That is something. And, well, if you can find a way to invest more than $50 a month, you’ll make a lot more money.
Mistake 2: Trying to do everything yourself
Finance can be complicated, so don’t be afraid to consult experts in the field if your budget allows. “For some people, saving for retirement is pretty easy. But if you have large assets, multiple accounts, different beneficiaries, or a complicated tax situation, it can be worth speaking to a financial advisor who can help you stay organized,” says Benson.
Ideally, these experts should be people who guide you in your specific situation, Green says. “We strongly recommend working with a financial planner or advisor Create a plan that is as unique as you and your goalsto give you the best possible chance of reaching them,” she says. “Financial planners are not one-size-fits-all, and they shouldn’t say they are. Meet or review at least two financial planners to make sure they’re a good fit.”
When choosing a financial advisor, Green recommends asking yourself the following questions:
- Do the expert’s diversity values support your values?
- Do they have the services you are looking for?
- Can they pick you up where you are?
- Do they speak your language or do they all speak financial jargon?
- Is their fee structure transparent?
- Are they approved?
Mistake 3: Incorrect calculation of the number you need to retire
“You can’t underestimate the need for cash in retirement, but you can’t grossly overestimate it either,” says Benson. “Overestimating means you have less to live on now. Using a retirement calculator can help you find the right number for you.”
Once you have a number and a plan to get to that number, you have to do your best to stick to it no matter how the markets go up and down. “If the market becomes volatile, similar to what we’re seeing now with inflation and an imminent recession, don’t change your plan,” Green says. “We don’t typically recommend changing your investment plan in response to market volatility. We believe that consistently investing through rising and falling markets in general is the best plan for a long-term goal.”
Mistake 4: Not considering tax-advantaged accounts
While it can feel fun and exciting to play in the stock market, your tax-deferred accounts — or retirement accounts that offer a tax benefit or exemption — must always be your top priority.
“The first place you should save for retirement is your own employer-sponsored 401(k) planif you have one,” says Green. “That money comes right off your paycheck before it reaches your bank account, so you might not even notice it.” This is especially important if your employer complies with your 401(k). As Green notes, that’s basically it free Money; don’t miss it
Once you’ve ticked the 401(k) box, you should take a closer look individual retirement arrangements (IRAs) next. Contributions to these accounts provide tax-free growth in your savings.
Mistake 5: Regarding retirement provision as a financial “task”.
Once your retirement planning strategy is in place, you’re likely to feel a sense of pride and security – and that can be empowering. “We all understand, to some extent, the concept of self-care — make time every day to take care of your mental, emotional, and physical health,” says Green. “Maybe it’s time to put retirement and financial health in the ‘self-care’ bucket and not just the ‘financial chores’ bucket and start a routine that more obviously connects ‘Today You’ with ‘Future You.’ says Green.