Putting away lots of your salary each month may seem like a great plan to have a comfortable retirement. There are plenty of ways you could be actually hurting your savings. Here are five common ways this could happen.
1. Saving on autopilot. Many employers are automatically starting workers on a company 401(k) plan. This may give employees a false sense of security they are saving enough. This could be a good start but putting away more than just what your employers do for you may be a good idea. It can potentially be a huge mistake to rely on autopilot savings without boosting the amount being stashed away.
2. Leaving money on the table. If someone offered you free money, would you take it? Many employees do not take advantage of the free money by employer matching. They often do not know how it works or how much they can get. Each company is different but you could be missing out on a substantial amount each year for your nest egg. Ask your human resources department to explain their matching policy and try to take full advantage.
3. Paying high fees. Studies have shown that retirement savers can lose a substantial amount to fees and lost returns, yet many savers pay little attention to what they’re paying. Look at your expense ratio of the investments in your 401(k) or IRA to figure it out. This is a yearly percentage of your account balance that goes towards investment management fees and other costs associated with operating the investments. Another to watch out for is employer-sponsored 401(k) plans that usually come with additional fees to cover expenses.
4. Retiring too early. It could be tempting to retire as soon as you can but waiting could make a difference. If you are in good health, consider waiting a few years. You cannot qualify for all of your earned benefits from Social Security until you reach “full retirement age” of 66 for most Baby Boomers and 67 for those born in 1960 or later. Claiming benefits at age 62 might be around 25% less than your full retirement age. On the other hand, your annual benefits may grow by 8% each year you wait up to age 70.
5. Wishful thinking. Hoping your nest egg will be big enough to support you during retirement most likely will not cut it. Few people take the time to set a realistic savings plan. When creating your retirement plan, think about the lifestyle you want to live and how much you will need to save each year to reach your goal.
Retirement can be more important to plan then people may think. Many do not know enough about it to realize they should start planning for it now. The sooner the better it could potentially be. If you are unsure of your plan contact a Wealth Advisor at Prosperity Wealth Advisors. You can reach us at 813-321-1572 or by email at [email protected].
Source: Hicken, Melanie. "5 Big Retirement Mistakes." Yahoo Finance. N.p., 07 Aug. 2014. Web.