John F. Wasik, Contributor
Aug. 6, 2020
Well, the biggest blunder is not saving enough money. No one wants to outlive their nest egg. The rest of the list is more subtle.
According to Certified Financial Planner Darren Zaragola , common mistakes include:
Mistake #1: Believing it is Too Late to Start Planning and Saving
It is never too late to develop good habits and start saving for retirement. You do not have to “go without” to save. Every little bit helps, especially if you can take advantage of compounding interest. Start with a written plan that includes realistic savings goals and a budget to help you understand where you are spending.
Mistake #2: Not Taking Advantage of Retirement Plan Provisions (e.g., Catch-up Provisions or Company Matching)
Now that your income is higher and your kids may be out of college, this might be the first time in years that you have excess disposable income. Also, at age 50 (or older), you become eligible to take advantage of “catch-up contributions.” This means the maximum amount you can contribute to your employer-sponsored retirement account is $26,000, or $6,500 more than you could at age 49.
Mistake #3: Withdrawing Money Too Early from Retirement Plan Accounts
Retirement plan accounts are intended to provide for your needs later in life. You should avoid taking funds from your retirement accounts before age 59½, as there is a 10% penalty on the amount withdrawn in addition to the income tax on the distribution. For example, if you are in the 22% tax bracket, an early withdrawal of $10,000 from your retirement account would result in $3,200 in taxes and penalties or fees. Consider other methods of financing.
Mistake #4: Investing in Your Children Instead of Yourself
We all want our children to succeed. For some, this means giving them the gift of graduating from college debt-free. Paying for a college education is a noble endeavor. However, if you choose to fund their education at the expense of your retirement, you may have difficulty making up the difference.
Mistake #5: Not Factoring in the Cost of Adult Children or Aging Parents
You are affectionately known as the “sandwich” generation, supporting adult children as well as aging parents. This may reduce your ability to save for retirement or cause you to withdraw retirement assets early. Understanding what will happen if they require long-term care will help you prepare for the possibility of having to support them.
Of course, there are other shortcomings such as not anticipating health care or long-term care expenses, inadequate estate planning, not cutting debt and investing too conservatively.
You can, of course, plan ahead to avoid most of these mistakes. If you need help, contact a fee-only, certified planner who can get you on track.
By John F. Wasik, Contributor
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