Your retirement is an incredibly important financial priority. If you start early, invest intelligently and consistently, and use all the tools at your disposal, you can give yourself a strong chance of success. Still, because of the substantial amount of money you need and the time frames involved, it’s quite easy to make a mistake when planning for your retirement.
Even worse, you only have one career to use to save for that retirement. If you make a big enough mistake, it might rob you of not only your money but also your time. Losing your time is what truly eliminates your chance at a financially comfortable retirement. The three mistakes outlined below are both easy and tempting to make, and by avoiding them, you set yourself up that much more for a strong likelihood of success.
Mistake No. 1: Waiting too long to get started
It’s tempting to wait until “later” to start saving for retirement. When you’re just starting out, you may have school loans, probably aren’t making a huge salary, and need to cover the start-up costs of establishing your independent life. Once you’ve established yourself, you might be starting a family, then come college costs for the kids, etc.
The reality is that at every stage of your life there’s always something else you can be doing with your money other than saving it for your retirement. Still, the sooner you get started, the better off you’ll very likely be. The table below explains why. It shows how much you need to save every month and in total if you want to retire at age 65 with $1 million and manage to earn 8% average annual returns along the way:
If you think it’s hard to come up with $286 per month at age 25 to start investing for your retirement, imagine how much harder it would be to come up with $1,698 per month starting at age 45. Yet if you want to retire a millionaire, that’s exactly the type of choice you face and why it makes so much sense to start earlier, rather than wait until later.
Mistake No. 2: Not taking advantage of free money
Once you do make the decision to save for retirement, the first place you should seriously consider is a qualified retirement account like an IRA or a 401k sponsored by your employer. The reason: free money! It’s tough enough to save for your retirement as it is, so why make it even tougher by ignoring the free cash that Uncle Sam and your boss may be throwing your way?
The first source of free money may very well come from your boss. Many employers offer matching contributions to employees who sock away money in the company’s 401k. That’s money your boss is offering you that’s only available if you actually make the contribution. Matches come in varying levels, but a common one is $0.50 for every $1.00 you contribute, up to some percentage of your salary.