Perhaps the biggest retirement mistake you can make is not saving for retirement. But there are other mistakes savvy retirement savers are making without being aware of the adverse implications. As you start or continue your journey toward retirement, avoid these common mistakes.
1. Leave Your Job Early
Do you realize that when you leave a job, you may be saying good-bye to the employer contributions to your 401(k) plan? Even if you are eligible to participate, most 401(k) plans have a vesting schedule. This means that you are required to stay on the job for a certain period of time before you can receive the full employer contributions. Don’t leave until you know you have met that deadline. If you haven’t, it may not be worthwhile to quit.
2. Make Bad Investments
A growing number of retirement investors look to the Self-Directed IRA because it offers more investment opportunities, the ability to diversify their retirement portfolio, and it gives them to chance to invest in asset they understand better than investments within Wall Street. No one can predict whether an investment is good or bad, but we can all better protect our retirement funds by diversifying our investments with a true Self-Directed IRA.
3. Borrow from Your Retirement Funds
Retirement holders in need of fast money, whether to pay a large bill or pay off debt, may decide to tap into their IRA or 401(k) funds, but this is unadvisable. Depending on your plan documents, you could be hit with steep taxes and early withdrawal penalties. And if you have a pre-tax account, you must also consider that you will be paying yourself back with after-tax funds. As a result, you have to save more since a portion of every dollar you put in your retirement plan goes toward income tax.
Borrowing funds from your retirement plan has many repercussions, and a common retirement mistake you should avoid.
4. Claim Social Security Too Early
You can claim social security benefits at age 62, but that is considered early since it isn’t full retirement age. So, if you can afford to wait longer, do so. As a result, your social security checks will grow much larger. This is why financial experts recommend waiting at least until retirement age, or even better, wait until age 70 to claim your benefits.
5. Waited too Long to Save
A 2018 Bankrate survey revealed that many American’s biggest regret (in terms of retirement saving) is that they didn’t start saving earlier. Most retirement savers get serious during their 40s and 50s, when they should have been serious during their early 20s. You should never wait long to save for retirement. Every year you save makes a major impact on your retirement funds thanks to compound interest.
So, if you’re eligible for a work-sponsored retirement plan, participate. If not, don’t use that as an excuse not to save for your retirement. There are others options, such as a traditional IRA, Roth IRA, or Self-Directed IRA.
We often say that saving for retirement consists of three primary principles – start early, be consistent and trust the process. This is true when looking from a general perspective, but saving for retirement definitely has its complexities. To better prepare yourself and ensure you’re on the right track, learn as much as you can and you can even work with a financial advisor who you have properly vetted.