6 Retirement Mistakes to Avoid in Your 30s and 40s
In your 30s or 40s? Here are the six mistakes to avoid now for a better retirement later.
If you’re in your 30s and 40s, retirement seems a long way off. Financial decisions you make now, though, will determine when you can retire and how much money you’ll have. You may not have started saving, already have a sizeable nest egg, or be somewhere in between. Let’s take a look at six retirement savings mistakes to avoid now so you can plan for a comfortable retirement later.
- Putting Off Saving for Retirement
In your 30s and 40s, it is easy to ignore retirement planning. Between raising kids, taking vacations, and advancing your career, you have many competing financial interests in your life. However, if you wait until you are ready to focus on retirement, you will lose out on years of compound interest you could be accumulating. The interest your money earns each year is added to the principal investment, so the next year you earn interest on that interest, compounding your savings.
By saving for retirement now, you could accumulate $1 million by the time you are 63.
- Not Taking Advantage of Your Employer Matching 401(k) Contributions
Many employers offer a 401(k) plan, a retirement savings account that is a good way to invest pre-tax money for your retirement. As an incentive to save, employers often offer matching funds. If you deposit up to a certain percentage of your salary in the 401(k), they will add the same amount. It is a good idea to take advantage of this free money from your employer to help grow your retirement nest egg. If your employer does not offer a 401(k) retirement benefit, you can open a traditional or Roth IRA. Either way you can have a tax-advantaged retirement account.
- Using Retirement Funds to Pay for a Home
You may be tempted to borrow money from your 401(k) retirement account to buy a house. Although you may be able to withdraw up to $10,000 from your retirement account without tax penalty as a first-time home buyer, there are still costs to this plan. The withdrawal may be considered a loan you need to pay back, which could be difficult while you are paying a mortgage. Plus, that loan could stunt the growth of your retirement savings.
- Putting Your Kids’ College Education Ahead of Saving for Retirement
It might be tempting to dip into your retirement savings to send your kids to college. But making this move could put you years behind in your retirement savings. Student loan programs could be a better option that will not compromise your retirement nest egg.
- Losing Track of Your Accounts
Ideally, retirement saving is a long-term strategy you begin when you are young. Over time you might get married, change jobs, have children, and adjust your retirement savings plan. It is easy to lose track of your accounts, which is the first step in losing money. Consolidate any old 401(k) or other retirement accounts as much as possible, weighing the benefits of the different types of plans that are available. If appropriate, move money in nonretirement accounts into a retirement plan.
- Choosing Unwise Investments
Many tools are available to make self-directed investing a viable option for almost anyone. The key is to avoid making unwise investments that could deplete rather than grow your retirement savings. Trying to pick individual stocks and buy and sell at the right time to make big gains is not a wise investment strategy. Everyone seems to have an investment tip or a favorite stock to pass along, but it is not advisable to rely on word-of mouth investment ideas. In addition, pay attention both to fees charged and performance of actively managed funds. Paying high fees for poorly performing managed funds is also an unwise investment.
Saving for retirement is a long-term financial strategy. The best retirement saving decisions result in slow and steady financial growth. It is a good idea to check in with a financial advisor periodically to initiate and review your retirement savings and investment plan. If you don’t have a financial advisor, contact your trusted financial institution for guidance.
