Retirement is a time to enjoy the “fruits of your labor” with loved ones and relax! It’s important to start saving for your future to ensure you will have enough money to support yourself and your hobbies. There are many things to consider, such as how much money you will need or what other sources of income there might be. By planning and learning what to avoid in the retirement process, you can avoid many retirement mistakes.

Mistake 1: Neglecting to Create a Financial Plan

Creating a financial plan now can give you an idea of your possible financial future. You don’t want to make the mistake of underestimating the cost and length of retirement. In the plan, include when you plan to retire, an estimate of how healthy you think you will be (family health history), where will you live or move to, and what activities you want to partake in. Do your best to estimate what your monthly and annual expenses are (mortgage payments, loans, utilities, property taxes, etc.) so you can project a budget for your retirement years. Also, estimate what your monthly and annual assets will be, including any retirement accounts, 401K, social security benefits, or other sources of income.

Retired individuals generally need at least 70-80 percent of their pre-retirement income to live on. This combined information will give you an estimate of how much to save and how much you will need in retirement. With this information, hopefully, you will be better prepared for the future.

Mistake 2: Not Making a Savings Habit NOW

The sooner you can start saving, the better. Each dollar you save in a compound interest account will accrue interest yearly until you retire*. For 401Ks, your contributions are on a pre-tax basis, which reduces your taxable income in the year you are contributing. Typically for 401Ks, you should be putting in 10% to 15% of your total income during your working years and at the very least contribute as much as your company matches (if available).

For traditional or Roth IRAs, you will need to save more, since the employer will not match the funds (Probasco, 2022). Saving as soon as possible will allow more funds to accrue, meaning more money for your retirement after leaving the workforce! Check out our Retirement Calculator for an idea of your retirement situation:

Calculate Your Retirement

Mistake 3: Driving Up Debt

If you are struggling to make payments now on unsecured debt like credit cards or loans, do your best to pay down and pay off that debt before retirement. Carrying balances on cards and loans means you’ll have less to spend on activities and entertainment and may have to pay high-interest rates on your debts. Experts even suggest that you should not stop saving for retirement even while working to pay off debt*. Set up an emergency fund separate from your retirement savings. A good goal is to have as few recurring monthly expenses as possible in retirement.

Mistake 4: Cashing Out the Retirement Fund

Cashing out part or all your retirement savings (before the age of 59 1/2) comes with a risk. The sponsor of your retirement funds can withhold up to 20% of the funds for penalties and the IRS taxes a penalty of 10%, meaning you will not receive the full amount. While there are circumstances where pulling from the retirement fund seems to be the only solution, understand the consequences before doing it and research ways to receive the money in other ways.

Conclusion:

If you need help in retirement planning, call BankIowa for assistance. Planning can help ensure you’ll have a comfortable retirement and avoid mistakes that may have been preventable all along.

*Any information provided is general in nature and is not tailored to your individual investment objectives, or needs, or relate to any specific investments.