When should you begin putting away for retirement? Now! It is never too soon to put money away for retirement. Americans have several options to put away funds. IRAs, 401(k) plans are the two most popular because they allow your deposits to grow tax deferred. There are several common mistakes that people make that will inhibit their march towards retirement.
1. Avoiding their most powerful ally TIME – Time is on your side yes it is. The sooner you start the sooner compounding can work for you. Don’t make the mistake of putting off getting started. It is better to start with a small amount today and get started.
2. Not having a systematic method of saving – Most people start and stop their savings program. Start with an amount that you can commit to and stick with it.
3. Not having their assets allocated wisely – Use the rule of 100 as a starting point. Take your age subtract it from 100. The resulting number is the maximum percentage that you should have in equities. You can go slightly lower if you aren’t comfortable with that number. However, if you are too conservative you may have to make larger annual contributions to reach your goal. If you are too aggressive, you could suffer heavy losses at a time when you can least afford to have those losses.
4. Not making use of tax-free retirement accounts – The more your money can grow tax deferred the greater the return because taxes don’t knock you back each year.
5. Not having a plan for after retirement – The closer you get to retirement the more important it is to determine an amount that you need to live. Once you determine your expenses, then you will be able to look at your sources of income to know if they will be sufficient.
6. Not giving your 401(k) the proper attention – Most employees have a 401(k) as a retirement option. The majority however don’t pay much attention to their accounts. You should track your investments and make sure your allocation remains consistent with your goals.
7. Make premature withdrawals or loans against your 401(k) – This account should not used as a line of credit. Leave it alone and allow compounding to work for you.
8. Not taking into account inflation or taxes – If you don’t account for inflation or if you forget that you distributions will be taxed at a given rate you could end up with a serious shortfall.
9. Leaning too much on Social Security – If possible use Social Security as extra not part of your core retirement. Social Security does not keep up with inflation in its payments and with changes in the financial situation your date that you can receive payments maybe delayed.
10. Putting too much faith in your company’s stock- This is an area that people tend to have an emotional attachment. Many time people own a large portion of their retirement assets in company stock. This is an investment just like any other and must treated so. Spread the assets around and make sure you are allocated properly.