While starting your retirement savings early is important in ensuring you will have enough money to retire, there are several mistakes that could sabotage your efforts. These are common problems that many people face and, as a result, end up having to delay their retirement by several years. In learning more about these bad money moves, you can avoid them.
Failing to Adopt an Aggressive Strategy
Later in your working life, you can adopt a less aggressive strategy that will help you maintain whatever wealth you have grown in the intervening years. However, as you start out, it’s important to adopt a more aggressive strategy that will help you grow your retirement wealth more quickly. A high risk/high yield strategy will take advantage of investments that offer a greater earnings potential. If you do happen to lose on an investment, you still have time to recoup that loss before you reach retirement age.
Taking Social Security Benefits Too Soon
The amount you get from the Social Security Administration upon your retirement will depend upon how soon you begin claiming benefits. While you can begin claiming as early as 62, taking benefits sooner will result in getting lower payments. Alternatively, delaying your claim for benefits until later in your retirement can help you get more each month in Social Security benefits. At age 66, the standard benefit is $2,700, but taking it early will result in reduced payments of $2,025. Delaying payments until you reach age 70 will result in benefit payments as high as $3,564.
Borrowing From Your Retirement Account
Another common mistake people make is to borrow from their retirement accounts to help them cover a financial emergency. This is a mistake because it can end up costing you more than you would have to pay in interest on a personal loan. In addition to repaying the funds you borrow from your IRA or Roth IRA, you’ll be responsible for paying taxes on the money you get from the account. You’ll also face 10% early withdrawal fee if you’re under 60 years of age. It’s better to borrow from a traditional lender rather than owing 40% of what you borrow to the government.
Upon your retirement, you should have a minimum of $1 million saved to ensure you’ll have enough to provide you with 80% of your salary for the remainder of your life. Anticipating a 6% rate of return on an annual basis, this means you should be saving $12,000 from your earnings each year. If you’re not saving this minimum amount, you likely won’t have enough money upon which to retire.