Everyone knows that saving for retirement is a good idea because you want to be able to retire on time and with enough money to live comfortably. However, not everyone actually does it or goes about it the right way. These are five mistakes that you could be making when saving for retirement.
- Throwing Away Free Money
If your boss offered you a 5 percent raise, wouldn’t you take it? Many employers offer 401(k) or similar accounts that offer to match whatever you contribute up to 5 percent. If you’re not taking full advantage of your employer’s matching funds, you’re essentially throwing away free money, but not everyone does take advantage. Do everything you can to maximize your contribution because otherwise you are throwing money away.
- Putting Your Money in One Place
Putting all of your money in the bank or in investments can set you up for trouble. A better strategy is to diversify your assets to protect yourself against the economy. The stock market may not give great returns if inflation is low and the country is in a recession, but your savings will be more valuable. Your cash will have more buying power. On the other hand, if the inflation rate is high, your savings may not be worth much, but the stock market may give good returns, and your house will be more valuable.
- Settling for the Default
You may fall into the trap of thinking you’re saving enough if you max out your employer’s retirement plan. It’s great if you are taking advantage of your company’s 3 or 5 percent matching contribution, but it’s not enough. Don’t mistake your company’s contribution for solid advice on how much you should save. Saving at least 10 to 15 percent for retirement is a good starting point. Take advantage of traditional or Roth IRAs, put some of your earnings into investments, and open savings accounts as much as you can instead of limiting yourself to your company’s 3 or 5 percent value.
- Living Outside of Your Means
A common reason for not saving enough for retirement is that you don’t feel that you have enough money to put away. You may be technically living within your means if you are spending less that you are currently making, but you’re better off limiting your expenses now so you can put more money away for retirement. Minor changes can help you save money.
- Eat out less often.
- Compare prices before making purchases.
- Avoid impulse shopping.
- Pay credit card bills off in full each month to avoid interest fees.
- Turn the thermostat up in the summer and down in the winter.
- Waiting Too Long to Save
Your retirement savings depend on interest and the stock market to increase their value enough to keep up with inflation. Saving early is far more effective than waiting until later to begin your retirement savings, but many younger employees don’t save much if at all. Regularly putting money away just a few years earlier can make a serious difference in your retirement account totals and your ability to retire on time.
The last thing you want is to get to your desired retirement age and realize that you can’t afford to retire. By planning ahead and managing your money well, you are far more likely to be able to retire comfortably on your savings.
This blog post is the opinion of Belmont Savings Bank and is not to be taken as financial or investment advice. For personal financial advice, please consult a financial advisor.