At some point, each of us will wonder when we will be able to stop working. If we are smart and begin our retirement planning early and strategically, that day may come sooner than we would initially expect. Unfortunately, too many people commit major mistakes when it comes to planning for the future. Young folks are particularly short-sighted when it comes to setting money aside for the years down the road. There are a few common mistakes that serve as a good warning. Take a look at the following financial what-not-to-dos:
1. Starting too late.
This may be simple advice, but too many people neglect their retirement funds by living entirely in the present. It is never too late to begin planning, but the earlier start you make for yourself, the better off you will be. The concept of a nice retirement account relies almost completely on the amount of money you save over your lifetime. Obviously, the earlier you begin, the more money you will save. Some planners predict, that to retire with one million dollars requires a twenty year-old to begin saving about $200 a month. A person who instead begins saving at age fifty would have to save approximately $2,000 per month to achieve the same goal. So start early, and reap the rewards!
2. Failing to seek professional advice.
The world of estate planning can be quite complex, particularly in the realm of retirement planning. Professional estate firms generally have tax advisors, financial managers, tax attorneys and accountants to help formulate a good plan and offer guidance when it comes to different aspects of retirement. These professionals have the experience and tools to remind you to consider all angles of retirement. For instance, many people fail to realize that health care costs will usually be higher during retirement. Professional financial advisors understand the pitfalls and can help you make better and smarter decisions.
3. Putting all of your eggs into one basket.
Many employees believe that stashing a set amount of money away into one account each month should be enough. This can be a dangerous path to take in that hidden fees, inflation and spontaneous emergencies can rupture this account and seriously deplete your assets. The smartest way to plan for your retirement is to distribute funds into different accounts and utilize various investment tools. Roth IRA’s and 401k’s can be great tools, but if you are relying on only one route, your costs could be eaten up by fees. Spread your wealth liberally and strategically to watch it grow exponentially.
4. Ignoring the tax ramifications.
Tax law is a very complex creature in the United States. First, the tax code is ever-changing and constantly evolving. Second, there are multiple layers of taxation, including local, state and federal. Retirement accounts are addressed by a separate set of taxation brackets. Many people don’t realize that funds can be taxed at different stages and different rates, depending upon which account is utilized and at what stage. Again, this is where an expert in tax law and estate planning can really come in handy.
5. Refusing to adjust your lifestyle to your income.
Finally, this one may touch a nerve for some. Smart retirement planning involves the discipline to maintain an appropriate lifestyle based on income. It can be difficult to know when to scale down and in what means to live if you are uncertain as to the logistics of your retirement account. With some budgeting and smart planning, this should be an easier step to take than some might think.