5 Biggest Missteps When Saving for Retirement

No matter what stage of life you’re in, saving for retirement is a key part of building a stable future. Whether you’re working for minimum wage, a paraprofessional, or an executive, it’s imperative that you place money aside every month for your future.

Despite the importance and necessity of saving for retirement, many people put off saving for another year or, worse, think that Social Security will take care of them when they’re no longer able to work. The most detrimental thing you can do, however, is depend on others to support you when you retire. Chances are you’ll end up working well into your 70’s. 

Waiting to Save

The best time to save is always now. Frankly, the best time to save was probably yesterday, but you can only take action and make changes today. 

When you start saving early, you cut down the amount you would ordinarily need to save each month over your lifetime. Even if you’ve missed the early savings window, consider contributing some amount into investments or a high-interest savings account at the very least. 

Having a small amount of money squirreled away is better than nothing at all, and you can turn around and invest that savings into a 401K, IRA, or even a SEP or SIMPLE IRA if you’re a business owner.

Missing the Savings Mark

The bottom line is that saving for retirement is a nonnegotiable part of adulthood. The typical formula for saving for retirement is $200 every month starting at age 25. This calculation will assure you have $1.2 million waiting for you in a retirement fund by age 65. Want to retire early? Be ready to set aside more each month.

For every year you put off saving or fall short of your goal, you either raise the monthly amount you’ll need to contribute to your plan or you risk running out of money late in life. There are very few people out there who love their work so much that they want to be there when they’re 75. Chances are you’re not one of them either.

Relying Solely on Social Security

If you’re hoping Social Security will make up for savings shortfalls, think again. Social Security, whether it’s still intact by the time you’re ready to retire or not, is intended to be an income supplement. You should remove any factor that Social Security plays in your current savings plan right now.

Despite the fact that you contribute to Social Security throughout your working life, the contributions you make are minimal in comparison to what you’ll need in retirement. In most cases, Social Security benefits provide less than half of what retirees require to live comfortably.

There’s also considerable doubt that the Social Security program itself will remain unchanged through the multitude of legislative efforts to cut benefits and allocate funds to other parts of the national deficit. With these pitfalls to Social Security in mind, it’s best to take Social Security out of the equation altogether and view any money you might receive from the program as a much-appreciated bonus.

Leaving Savings Unmatched

To get the most out of your existing retirement fund, look no further than your employer. Many companies have excellent plans that offer matching contributions. Often, these plans require you to set aside more money each paycheck to receive a match from the company, but it’s well worth it in the end.

The best part of receiving matching contributions from your employer is the tax deduction at the end of the year. The tax deduction means you get some of your own money back while you simultaneously reap the rewards of free money from your employer and an increase in compounding returns. 

Not Making Saving a Habit

Even if your employer doesn’t offer an incentive to match contributions, you should make saving a habit. There are few things in life more rewarding than watching the sustainability of your future grow over time. That’s exactly what contributing consistently to your retirement plan feels like. 

No matter how much money you’re able to contribute on a monthly basis right now, make sure you’re hitting the maximum amount every time. Better yet, look for ways that you can contribute more money as your circumstances change.

When you establish a foundation of savings, you’ll naturally look for more opportunities to secure your future. In the end, you want the act of saving for retirement to feel just as rewarding as the work you do now. Afterall, you want to look forward to retirement as a time to relax and reflect on a life well-spent and well-saved.