Stop Committing these Retirement Planning Mistakes Right Now!
All of us want to retire. We look forward to the day where we can finally relax and stop working. It’s the perfect time to enjoy our lives and do the things we want like traveling the world, building a new business or pursuing your passions.
It’s the time where we don’t have to worry about earning money anymore since we already have enough funds to support our lives. However, the truth is that not all of us prepare for our retirement. According to the Employee Benefit Research Institute, around 56% of Americans claim they save little to none for their retirement in the recent Retirement Confidence Survey.
And even if the remaining 44% are currently saving for their retirement, most of them claim they didn’t know if they’re doing the right thing. Here are the mistakes you need to stop committing to prepare for a sufficient and comfortable retirement.
Not Updating Your 401(k) contributions
If you’re already allocating a portion of your paycheck to your 401(k) contributions, then give yourself a pat on the back. It just means you’re really thinking about your retirement. However, the amount you’re contributing right now may not be enough if you’re going to stick with it forever.
It’s important to update your contribution amount based on your financial goals and changes in life. For example, if you get promoted and you receive a salary increase, you should raise your contributions too to save more money for your retirement funds. Most financial experts recommend you allocate at least 10-20% of your wages for your 401(k) contributions.
Relying On Retirement Calculators Too Much
While retirement calculators can be a helpful tool to give you an estimate on how much money you need to save for your retirement funds, it’s not going to spit out some magic, random number to make your retirement blissful.
Different retirement calculators use different methods to calculate your retirement funds. For example, both AARP and Fool’s calculator will allow you to include information about your Social Security, but not in your investment portfolio.
Merrill Edge, on the other hand, will ask about your investment risk appetite which the former two won’t take. However, Merrill Edge won’t take your Social Security information as well. While these calculators serve as your guide in saving for your retirement funds, it is still better if you incorporate it with talking to your financial advisor.
The advisors can help you assess your financial goals and retirement funds while preparing for any unforeseen aspects of human life. For example, health problems may cause a stall in your retirement savings if you don’t prepare for it. So your financial advisor can help you prepare for your health care while building your retirement funds.
Forgetting To Pay Your Taxes
Aside from building your retirement funds, you must also take your taxes into consideration. Otherwise, you’ll be draining your hard-earned savings by paying taxes! The first step is to determine which types of income are subjected to taxes in the first place.
For example, your Social Security usually won’t be taxed unless you have other sources of taxable income. These taxable incomes can be in the form of pension, income from rental properties, annuity, or tax-deferred retirement accounts. You may be entitled to pay up to 85% of your Social Security income.
For other forms of retirement income like the traditional 401(k) or IRA, you may need to pay income tax in each withdrawal, and it will even depend on how much money you’ll withdraw, causing your taxes to fluctuate every year. It’s important to pay your taxes now while you’re still working and earning money actively compared to when you reach your retirement.
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