Provided by Terry Garland and written by Indigo Marketing Agency, a non-affiliate of First Allied Securities, Inc.
Sure, we all dream about what we’ll do and where we’ll live in retirement, but do we match that dreaming with proper planning? Not normally. Americans of all ages admit to thinking about retirement four or more times a week, (1) but the disconnect between how much we have saved and the when and how of our ideal retirement shows some major planning gaps.
Even if we think we have enough time to save, the actions you take throughout your working years are often not felt until much later on when you are actually retired. So, to help you bridge that gap and avoid regret, here are some common retirement planning mistakes we see.
Not Saving Early Enough
There’s a reason you hear a lot about compound interest—it’s powerful! As you build your savings, the interest you gain earns more interest the longer the money sits there. Therefore, the earlier you start saving, the longer time horizon you have for your savings to compound. A common mistake that pre-retirees make is starting their savings journey much later than they should have. Even if it is just small amounts of money saved early on, the compounding effect will be worth it in the long run.
For example, if you start saving $400 per month at age 25, you would have $1 million saved by age 65 (assuming a 7% annual investment return). If you don’t start until age 35, you’ll have to save around twice as much to reach $1 million by age 65.
Investing Too Aggressively At Or Near The Point Of Retirement
Unless you’re planning to work part-time, you don’t earn a paycheck in retirement. Since you have to rely on the investments and savings you’ve accumulated during your working years, the last thing you want is the markets hurting your chances of a comfortable retirement.
When you first start out accumulating your wealth, you have a long time horizon, and most investors have the ability to be more aggressive when beginning to save for retirement. However, as you get closer to retirement, you want to adjust your investment allocations to be less aggressive. Nobody knows what the market is going to do, but we do know that as retirement approaches, you cannot afford a downturn in the market.
Not Having A 401(k) Strategy
Chances are you have multiple 401(k)s from previous employers. While you can choose to keep each plan where it is, you should know that you have options. And, as with most financial decisions, each option has pros and cons and fine print to consider. That’s why it’s key to have a strategy that fits into your overall financial plan. For example, you may choose to cash out your plan, but then you’re stuck with a 10% early withdrawal penalty if you’re under 59½ and income tax consequences to boot.
Rolling your old 401(k)s into an IRA is a common solution that will allow you to diversify appropriately, see the big picture of your financial situation in one place, avoid high fees, and have more investment options. As always, it is a good idea to consult with an experienced financial professional when making changes to your retirement savings plan so they can walk you through your options and how they relate to your situation.
Using Retirement Funds To Pay For College
This is a common mistake that pre-retirees make early on, thinking that they will be able to make up for the money taken out of their retirement accounts to pay for their children’s college costs. While it is a great goal to want to pay for your children’s college education, you have to weigh the consequences of what it could do to your retirement.
If you deplete a good chunk of your retirement funds early on, you are just setting yourself up for a different type of financial strain that cannot be financed. Remember, you can always borrow for college, but you can’t borrow for retirement. If you still want to help your kids out, walk them through the process of applying for scholarships, grants, or financial aid and encourage them to find a part-time job while they are studying.
Do Your Best To Avoid These Mistakes
Planning for retirement is not always a simple process. It involves a lot of decisions to be made today that can drastically impact your future self in retirement. If you’d like to learn more about actions to take to get on track for your retirement, please do not hesitate to reach out to us at Golden Capital Management. Call (515) 226-0115 or email info@garlandandassoc.com today.
About Terry
Terry Garland is the founder and CEO of Golden Capital Management with more than 25 years of industry experience. He works with individuals, small-to-medium-sized businesses, and medical professionals, including physicians and dentists, allowing them access to a wide variety of specialized services and investment vehicles to fit their specific needs. He graduated from Drake University and attended the Wharton School at the University of Pennsylvania and is a certified wealth strategist and a registered principal. With offices in Des Moines, Iowa, and Carlsbad, California, he serves clients across the country. Learn more by connecting with Terry on LinkedIn.
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(1) https://www.provisionliving.com/news/survey-reveals-americas-ideal-retirement-lifestyle