According to a Federal Reserve report, almost half of the non-retired adults are already making mistakes when planning their retirement. That may be scary, but it is true.
These findings have been collaborated by another report produced by Fidelity. The report states that over 50% of American non-retired adults need to take immediate action if they are to achieve their retirement savings goals. The findings are based on the retirement preparedness measure (RPM). The measure reflects all reported retirement investment assets, retirement guaranteed income sources, and earned income in retirement.
According to the report, the RPM in America is 74, but about 41% of Americans have a 65 score. Only 33% of Americans have an RPM of 95, which is described as a “very good” score.
Now that we know where we stand let’s focus on how you can join the 33% of Americans with impressive RPM. What mistakes could you be making when planning your retirement.
1. Failure to Have a Retirement Saving Plan
Benjamin Franklin once said, “If you fail to plan, you are planning to fail!” I could not think of better applicability of this quote than in the case of failing to plan for your retirement savings. The outcome of failing to plan for your retirement savings is that you will have nothing or not enough money for your retirement.
But how do you fail to plan in the case of retirement savings? The greatest mistake you are making is lacking defined goals for your retirement savings. One reality you need to accept is that retirement and old age are constant. Those are factors you cannot control. However, you can control the quality of life you want during retirement.
On the bright side, coming up with retirement goals is not complicated. You can define your retirement saving goals using the following checklist.
- How much do you want to save for your retirement?
- At what age do you want to retire?
- What is your expected life expectancy?
- What type of lifestyle do you intend to live during retirement?
- Have you factored in the cost of inflation?
- Your level of expenses, including any long-term debts
- How much do you plan to save for retirement each month?
Luckily you don’t have to worry about getting into details of determining your targeted retirement savings. The Wheeler Wealth Formula will help you determine the optimum retirement savings amount at minimum hassle.
2. Failure to Factor Inflation
The most talked-about issue right now is inflation. It is the topic dominating almost every news outlet. Everyone is already feeling the pinch brought about by the rising inflation rate. But what does this inflation got to do with your retirement savings?
In your case, the cost of commodities today will not be the years to come when you retire. It means your retirement savings should factor in the rising cost of commodities during retirement. On the bright side, the Wheeler Wealth Formula accounts for inflation when determining your optimum amount of retirement savings.
3. Not Starting Early Enough
The reality you need to accept about retirement is that it will happen. The sooner you start saving for it, the better it will be for you. It means you don’t have to deal with the pressures of a last-minute rush. It also minimizes the number of contributions you make monthly.
It also means that you do not have to change your retirement lifestyle. For example, if you want to travel during retirement, you will have enough financial muscle to sustain this lifestyle.
Robert Einstein once referred to compounding interest as the eighth wonder of the world. Imagine you have the perfect opportunity to experience this wonder. The 401(K) retirement plan offers you a compounding interest depending on the type of investment you choose. The more years you save, the better your final retirement amount is.
4. Robbing Off Your Retirement Fund
How many times have you been tempted to withdraw from your retirement savings fund? The most tempting one is being offered the chance to get a loan from your retirement savings account. It may be your money, but it is not for use in your pre-retirement life.
There are several mistakes you make when you get tempted to withdraw or borrow from your retirement account.
- You may never have the capacity to replace the money you took
- It attracts large tax bills resulting from income tax on tax-deferred withdrawals from 401 (K) or traditional IRAs
- Withdrawal before the retirement age attracts a 10% penalty
5. Not Taking Advantage of Employer Benefits
According to a Bureau of Labor Statistics report, 68% of private industry employees have access to retirement benefits offered by their employers. However, only 51% of the employees choose to take advantage of these benefits.
Here are reasons why you ought to avoid making this mistake again:
- Employer-based contributions are a great tool for automatic savings
- Please take advantage of employer matching on 401(K) and 403(b) contributions, as it helps increase your contribution amounts.
Are You Ready to Make a Positive Change to Your Retirement Savings?
Always remember that your retirement and old age will happen. Your choice today will determine the kind of lifestyle you can afford during your retirement.
Make the right choices today by being informed on the right retirement savings strategies. You can learn them by tuning in to Wheeler Wealth Creation Podcast today. You will also get to know more about the Wheeler wealth creation formula.