Everyone knows it’s important to save for retirement. And many people try to do the right thing and prepare well.
So why do so many investors arrive at retirement only to find they’re far from ready?
Unfortunately, these 5 common mistakes often create pitfalls for investors.
- Creating an account and forgetting it.
Many investors start off right and enroll in a retirement plan, but that only gets you in the game — it’s not how you win. In fact, leaving your saving strategy coasting on cruise control is the quickest way to be left behind. Your retirement contribution amount should directly correlate to a percentage of your salary to make sure you’re steadily saving more as you make more.
- Starting too late.
A lot of people are going to start preparing for retirement — someday. However, starting early can have a huge impact on your retirement account value. For example, if you assume an 8% average return, a 25-year-old investor would need to invest $143 per month to have $500,000 at age 65. If he waited until age 35 to begin investing, he would need to invest $335 per month to reach that same $500,000 goal at age 65. The younger you start investing, the more the compounding can work in your favor.
- Allocating inappropriately.
How far are you from retirement and what level of risk is appropriate for you? As you answer these questions, consider your income requirements and lifestyle expectations during retirement. Understanding your needs through the lens of your risk tolerance and time horizon will help determine an appropriate investment allocation. GuideStone® can help you determine an appropriate allocation. Visit our Retirement Planning and Guidance resources to use our Investment Recommendation Tool.
- Taking a retirement account loan.
When unexpected expenses occur, some investors take a loan from their retirement accounts to alleviate financial strain. But while retirement account loans may provide access to a limited portion of your funds, the uninvested loan money loses the opportunity for substantial growth.
- Guessing retirement income needs.
For many, planning for retirement is taking a stab in the dark. They save money, but don’t know whether it’s enough or how much they’ll actually need to live in retirement. But saving doesn’t have to be such a guessing game. With tools like GuideStone’s Preparing for Retirement resources, you can estimate a retirement budget for expenses like food, transportation, housing, medical costs, utilities and taxes and make informed decisions today about your retirement years.
Since the average American spends more than 20 years in retirement, it’s important to make sure you’re doing all you can to provide adequate income during your later years. Avoiding these 5 pitfalls while proactively managing your retirement account can help you stay on track toward a comfortable retirement.