Retirement planning is a lifelong journey. To reach your goals, it’s best to start as early as possible and stay informed so you can avoid costly mistakes that can set you back. With savvy planning, you can enjoy the retirement you’ve worked so hard for, whether that means finally taking that dream vacation, exploring a new hobby, spending more time with family and friends or something else entirely. To keep you on track, we’ve covered the biggest retirement planning mistakes you can make during five decades of your life.
20s: Not Saving for Retirement
When you’re in your 20s, retirement is probably not your primary focus — after all, it’s so many years away. Still, your 20s are the very best time to start saving because of the power of compound interest and deferred taxes. Every dollar you save now will have much more time to grow, which makes reaching your long-term goals easier. For example, if you begin saving for retirement at age 25 and contribute $200 each month to your retirement plan, by the time you turn 65, you’ll have roughly $300,000 in retirement savings (assuming a conservative 5{9b4666d8adb20cd465eaa09557fdadc4ce6331ff7a2141599293ad21682ed22c} average annual rate of return). On the other hand, if you wait to start saving until you’re 35 and contribute the same $200 each month, by the time you turn 65, you’ll end up with roughly $160,000. That’s almost half as much! If you start saving now, you’ll thank yourself later.
If your employer offers a 401(k) retirement savings plan benefit, you may choose to start your retirement savings by participating in your company’s plan. If not, you can open an Individual Retirement Account (IRA) at most financial institutions, including banks and brokerage firms.
30s: Investing Too Cautiously
In your 30s, your priority should be to grow your retirement savings. Your portfolio should be comprised of high-growth assets such as stocks, exchange traded funds (ETFs) and mutual funds, rather than safe but low-earning assets like cash and money market accounts. Now is the time to be aggressive because you are investing a relatively small amount of money and have plenty of time to wait out market swings. If you are too cautious, your savings may not grow adequately.
40s: Focusing on Other Goals
During your 40s, other major financial goals often start to crop up, like saving for your kids’ college tuition, paying off your mortgage and starting your own business. While these goals are important, saving for retirement is just as important as paying off your house and putting away funds for education. If you fall short of your retirement goals, there is no effective backup plan. You can take out student loans for college, for example, but there is no real way to borrow if you don’t save enough for retirement. It’s a good idea to make sure you meet your retirement goals first, before tackling other financial challenges.
50s: Taking a Large, Early Withdrawal
Once you’re in your 50s, you should have a decent amount of money saved up. This can look pretty tempting when a big bill comes your way, such as the estimate for a major home renovation or the bill for a year or two of college tuition. Resist the urge to tap into your retirement savings for these expenses.
With a retirement plan such as a 401(k) or traditional IRA, you would owe income tax, and possibly an extra 10 percent early withdrawal penalty, on the money you take out. A penalty may even apply when you take money out before you turn 59 and a half. There are a few special situations where you would not have to pay the penalty, but you would always owe the income tax.
Depending on when you plan to retire, you might also be missing out on the last chance to grow your savings before retirement.
60s: Not Planning Your Retirement Withdrawals
By your 60s, you’ve ideally built up your nest egg. Now you need to figure out how to manage your savings so they last the rest of your life. If you take out too much too early, you’ll risk running out of money later on. One possible solution is to purchase an annuity, which will turn your savings into guaranteed income that will last your entire life. You can also use myOrangeMoney® from Voya to see how much income you can generate with your savings so you can set an appropriate budget.
If you need additional assistance with your retirement planning, an Employee Assistance Program (EAP) may be able to help. The LifeCare® Work-Life EAP may provide financial referrals and consultations as well as discounts on financial services. Log into My TotalSource® to learn more about this LifeCare program.