Retirement changes your daily routine in many ways. Along with getting income through new sources, you also have various commitments. You may have more time to pursue hobbies and help others or stay home more than you did during your working years.
Preparation for retirement can last decades, and it’s essential to consider your upcoming needs. This often includes budget and lifestyle considerations. If you can avoid financial pitfalls and other retirement planning mistakes, you’ll increase your chances of enjoying retirement.
This article will discuss mistakes to avoid making when planning for retirement.
1. Not planning early enough
Waiting until your 40s, 50s, or later to save for retirement means your investments will have a shorter time period to grow and earn interest. Starting early allows you to maximize compounding returns and build a larger nest egg over time.
2. Reducing your savings over time
If you initially begin to set aside 10% to 15% of your income each year but reduce the percentage over time for vacations or home projects, your long-term portfolio could suffer. Failing to adequately save for retirement is a common mistake. Consider what retirement accounts are available to you, like 401(k), IRA, Roth IRA, or another employer-sponsored plan. In addition, check your budget and consider setting up automatic withdrawals each month so you won’t be tempted to spend the funds elsewhere.
3. Agreeing to support your adult children
Your adult children may appreciate the assistance when you lend them a hand, but they could also come to rely on your financial backing. This could make it even more challenging to save for yourself. While you may want to help make life easier for them by paying for a wedding, planning your retirement first is essential.
4. Overlooking contribution opportunities
When you turn 50, you can put extra funds into retirement accounts, such as a 401(k) or IRA. You’ll want to take advantage of your employer’s matching contributions, catch-up contributions, and other incentives that will shore up your reserves for the future.
In addition, check your contribution limits and adjust your budget to maximize your savings each year. And find out if your employer matches some of your contributions. You may be able to receive additional funds through your workplace policies. Some companies agree to match up to 50% of your contribution up to a certain amount each year.
5. Carrying too much debt
Retiring with high credit card balances could impact your budget. You’ll have less to spend on activities and entertainment and might have to pay high interest rates. If you can, look for ways to reduce or eliminate debt before retirement. Some people nearing retirement also try to pay off their mortgage as well.
Contact Pinnacle to learn more about our Simplify Retirement program and retirement advisors!
Pinnacle is a boutique-defined contribution plan consulting firm focusing on retirement plans, serving our clients and their participants as fiduciaries. Our team comprises retirement industry veterans with deep experience in 401(k) and 403(b) plans. For over two decades, we’ve differentiated by ensuring our client’s employees have an expert resource.
Our Simplify Retirement program addresses two critical areas — simplifying the employee experience and proactively reaching out to employees to help them maximize their retirement plan. We now support advisors and plan sponsors, offering a communications and education program that proactively delivers high-quality, plan-specific information and personalized calls-to-action to improve employee engagement.
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