Planning for retirement is one of the more complicated tasks most people take on during their lifetime. It isn’t always easy to predict how much money you will need and when you will need it.
In this post, learn why you should always plan early for your retirement, even if you have to start with small steps!
Problem 1: Your fear of investing isn’t going to go away later.
Many people delay the start of their retirement planning because they feel fearful of learning about investments. But this fear, while natural and normal, isn’t going to magically disappear as the years pass by. Rather, the fear may grow through simple neglect.
There are so many wonderful resources that can help you learn about basic investment vehicles like stocks, bonds, mutual funds, tax-deferred plans (IRAs, 401-K plans) and others. Don’t let fear rob you of the chance to learn how to save for your future.
Problem 2: You haven’t actually calculated out what you need to retire at any certain age.
“If you don’t know what you need, there is a good chance you won’t be saving enough to meet that need,” said Yellow Brick Road Financial Advisors. And yes, it is always possible that your needs may change or that you may under- or over-estimate your need. But it is still wiser to make your best-guess estimate than to “wing it” and find out too late that you haven’t saved nearly enough.
Problem 3: You think you should pay off all your debt before starting to save for retirement.
This is such a common misconception. But life tends to unfold in such a way that one debt simply replaces another. First you have a student loan debt to repay. Then you have a car note and then a mortgage. Then perhaps you go back to school and then it is time for another new car and so forth….so waiting to start your retirement savings fund until you are debt free makes it highly likely you will never get to a place where you can start saving in earnest!
Problem 4: You haven’t stayed in one job long enough to participate in a 401-K employer-sponsored plan.
In the job market right now, changing jobs frequently or working for yourself is much more common than staying in one job for several years or even your whole career. So many adults today haven’t been able to take advantage of the longer-term benefits of employer-sponsored 401-K retirement savings plans.
But you can still set up a tax deferred IRA (individual retirement account) that you can manage on your own. You can make deposits, track the fund’s growth and enjoy reduced income at tax time based on the money you put into the IRA.
Problem 5: You treat all your expenses as if they are essential.
It is true that no one wants to live on a student’s budget forever. So of course when you graduate you want to sample the finer things in life. But there are essentials and there are extras, and it is important to learn which is which so you can set aside funds for retirement.
Problem 6: You fail to factor in the benefits of paying lower taxes.
If you don’t start saving for your retirement early on, you will have to pay the full tax rate on all of your earned income in every calendar year. But if you start saving, you can reduce your taxable income by the amount you set aside in a retirement savings account, which will save you money now and provide for your financial needs later.
Problem 7: You assume your Social Security benefits will take care of you.
There is no guarantee that Social Security as we know it will be available when it comes time for you to retire. The best strategy is always to plan for your own financial needs before you need them.
By avoiding these seven problems and taking a proactive approach to saving for retirement, you will enjoy peace of mind as well as income tax savings every year you save for retirement.