Whether it’s traveling the world, relaxing on the coast, or spending time with grandchildren, everyone dreams about retiring one day. The greatest challenge with retirement is that the road to get there is long. Generally, people will work 40 or more years before they save enough to leave the workforce and live comfortably.

With a goal so far on the horizon and the multitude of obstacles life throws at you along the way, it’s easy to become distracted and stray from your retirement plan. For some members, retirement is right around the corner. Others might have decades still ahead of them. Regardless of where you stand right now, it’s wise to review the mistakes others made before you – giving you the opportunity to avoid them yourself.

 

1. Lack of Strategy

“A goal without a plan is just a wish.” (Antoine de Saint-Exupéry) is one of the best retirement quotes, and for a good reason. Retirement is more than simply socking money away. Yes, it involves saving, but how you save is just as important. For example, certain tax-advantaged accounts can significantly reduce your future tax liabilities. You also need to know how much to save. Once retired, how much money will you need monthly to live comfortably?

Creating a retirement plan is crucial and serves as your compass along your retirement journey.

 

2. Not Starting Early

When you’re in your twenties, retirement is probably the last thing on your mind. While you know you should start saving, there are more pressing goals – such as beginning your career, moving out on your own, possibly getting married, or even starting a family.

But the decisions you make when you’re younger could have the greatest impact on your future self. The earlier you begin saving, the more time your money has to grow. Your investments will benefit significantly from decades of compound interest. So, even if you don’t have much initially, do your best to start putting aside money in tax-advantaged accounts, such as an IRA.

Remember, the one thing you can never get back is time.

 

3. Not Maximizing Employer Contributions

Finding and keeping top-quality employees is always a challenge for employers. That is why many companies reward their employees with an attractive benefits package that extends beyond their salary. One of these perks is a 401(k) match.

With 401(k) matching, your employer will generally match any contribution you make to your retirement account up to a certain amount or percentage. If your employer offers matching, you should always strive to maximize your contributions up to the required amount. This is free money from your employer, and there’s no reason to leave it sitting on the table.

 

4. Tapping into Retirement Funds Early

To incentivize the American people to save, the government offers a variety of tax-advantaged accounts. Utilizing these accounts can help you save on taxes now or in your golden years. However, you’ll be penalized if you withdraw money from a tax-advantaged account early. Usually, you’ll be required to pay taxes on the amount withdrawn and will likely incur a 10% penalty.

The money you put aside for retirement should never be touched unless it’s an extreme situation.

 

5. Stressing About the Markets

The economy will always fluctuate, and the stock market will forever be a rollercoaster ride. If you become too fixated on the “now” and stress about every up and down in the market, you’ll likely make bad investment decisions and completely stress yourself out.

Again, retirement is a long-term game. If your golden years are decades away, fluctuations today are unlikely to derail your retirement plan. If retirement is around the corner, work with your financial advisor to begin transitioning into more conservative investments to limit your exposure to market changes.

 

6. Prioritizing Your Kid’s College Fund

With skyrocketing college costs, many parents do their best to save for their children’s future school expenses. While this is admirable of the parents, they often prioritize it over their own retirement savings.

Instead, focus on your retirement first. Then, as you become comfortable in your retirement savings, create a college fund. Remember, you can always help your children with student loans - you cannot finance your own retirement.

 

7. Failing to Consider Taxes

One of the most significant and overlooked aspects of retirement planning is taxes. Whether you use a 401(k), Traditional or Roth IRA, Health Savings Account (HSA), or a combination, tax-advantaged accounts are crucial to a strong retirement plan.

As the U.S. debt continues to climb, taxes will likely increase down the road. Working with a financial advisor, you can make moves today that will limit your tax liabilities in the future. The last thing you want is to finally retire and realize Uncle Sam is taking a much bigger chunk of your monthly income than you anticipated.

 

8. Underestimating Healthcare Costs

Healthcare and college costs are two expenses that never seem to decline. Unfortunately, many retirees fail to realize just how costly medical expenses can become later in life.

While Medicare will begin at age 65, you may choose to add supplemental care. But the larger, unforeseen expenses usually arise in later years when individuals need to move to assisted living facilities. These costs can be extremely high and will not typically be covered by Medicare.

Working with a financial advisor to plan for future healthcare expenses with paramount. They can help you predict future costs, calculate inflation, and add it to your retirement plan.

 

9. Taking Social Security Too Early

Depending on your financial situation and overall health, waiting to receive your Social Security benefit is wise. Social Security has many rules and strategies, so it’s highly recommended you work with a financial advisor. For example, some couples choose to have one person access their Social Security sooner, while the other spouse waits until they are 70 years of age.

Your financial advisor will help you decide which strategy is best for you and your unique situation.

 

10. Retiring with Too Much Debt

When you create a retirement plan, you’ll likely have a set target date for retirement. Many become fixated on this timeframe and will retire regardless of whether they’re truly ready.

You need to be able to look at your financial situation and distinguish whether you’re financially capable of leaving the workforce. If life threw you a curve ball and you had to put costly medical expenses on a credit card or needed a loan for home repairs, be prepared to adjust your retirement date.

While working a bit longer than anticipated might be disheartening, you don’t want to retire with unplanned debt hanging over your head – especially when living on a fixed income.

 

We’re Here to Help!

Your golden years should be spent with family, traveling, and enjoying all life offers. While the journey to get there might be long, with the right plan and guidance, you’ll have peace of mind knowing you’ll be ready when the time comes.

If you want speak with us about your retirement goals and explore your savings options, please give us a call at 202-479-2270 or emails us at members@agfed.org.