Avoid These Retirement Planning Mistakes

It’s easy to put things off until tomorrow, especially when that tomorrow is years away. This attitude is just one of many ways we can derail or delay saving for retirement. Here are some mistakes to avoid.

Starting Late.

Check out www.investor.gov’s compound interest calculator to figure how time can work to your advantage. If you contribute $800 per month that gains 5% annually, compounded daily, you will accumulate over $1.2 million after 40 years. Delay contributions 20 years, double the monthly contribution to $1,600 with the same terms over the next 20 years, and you’ll have about $660,000. Time and compounding make a huge difference, so save early and regularly.

Investing Inappropriately.

Time to recover may help ease the impact of market volatility when you’re young. If you’re retired, you may want to invest for enough growth to match inflation, but more conservatively than when you were younger.

Not Maximizing Your Employer’s 401(k) Match.

Don’t leave money on the table. If your employer matches some of your contributions, consider putting in at least that amount.

Going Without a Retirement Account.

If you don’t have a retirement plan through work, consider opening and contributing to an individual IRA. You have until the tax filing deadline in April to have it count for 2018.

Taking Plan Loans for Vacations.

Don’t tap your retirement funds for a frivolous expense, which puts you behind the eight ball for retirement and costs you interest, too. See the earlier interest calculator example.

Taking Plan Loans for College Expenses.

This isn’t a frivolous expense, but you and your child may be able to borrow or save for it in more appropriate ways. You can’t borrow for retirement.

Not Taking Advantage of an HSA.

Health Savings Accounts are triple tax-free. This means tax-deferred contributions, tax-deferred earnings and tax-free distributions for qualified health care expenses. After age 65, you can take withdrawals for any reason penalty free — just pay income tax on the unqualified amount.

Making the Ultimate Mistake.

You haven’t created a long-term savings strategy? Work with a financial professional to create one and fine-tune it as your situation changes.