For many of us, retirement is a great unknown. In your 20s, it seems so far away that itโs easy to figure youโll start saving when you have more money. Of course, if you wait until you have โextra money,โ you might never start at all.
But 20-somethings arenโt the only ones who do things that sabotage their retirement. Their parents may be putting their own retirement at risk by, for example, borrowing money to pay for a wedding, just when they should be turbocharging their own savings, especially if they started late.
So what are we to do? We donโt know that weโll live to be 85 and still healthy enough to travel, or that the stock market will crash just before we retire. And yet we hope to plan as if we do know. Some of us dream about retirement โ and many of us sabotage it at the very same time. Here are some money moves you may regret down the road.
1. Raiding Your Home Equity
Home equity can seem like a a piggy bank when youโre short on cash. And a โdraw periodโ on a home equity line of credit before repayment of principal is due can make it feel almost like free money. Worse, it feels like you are borrowing from yourself. After all, you built up that home equity, right? But if you spend it now, you wonโt have it later. And should you decide you want to sell or get a reverse mortgage at some point, that decision can come back to haunt you. You will walk away with less from a sale or be eligible for lower payments from a reverse mortgage. Either way, Retired You could suffer from the decision.
2. Unplanned Roth IRA Withdrawals
Some experts recommend Roths as vehicles to save for a first home or as a place to park an emergency fund because the money grows tax-free. If you have planned to use the money for a first home, you can withdraw up to $10,000. It can also come to your rescue for unforeseen expenses. Its flexibility is both an advantage and a temptation, since raiding your retirement account now robs you of those funds and their compounding interest down the road.
3. Failing to Put Away Anything
For many of us, itโs easier to wait to save until weโre โmore establishedโ or until weโre making a little more money. Why arenโt we saving? Because thereโs no extra money! The problem, of course, is there may well never be any extra money. Most of us donโt come to the end of the month and try to figure out what to do with all the money thatโs left. Saving needs to be in the budget from the beginning. Itโs often easiest to automate this.
4. Helping Adult Kids Financially
But theyโre your children. And everyone makes mistakes. (Or maybe they think you did when you didnโt save thousands for a wedding.) There are exceptions, of course, but if you do help out financially, be sure you minimize your own costs or that you do not jeopardize your own retirement. Itโs not usually a good idea to let them grow accustomed to a parental supplement. Relationships and money can be fraught, too. So think very carefully before you make your help monetary.
5. Co-Signing for a Child or Grandchild
They are just starting out and donโt have much of a credit history. Or they want to take out private student loans, and all thatโs standing between them and next semester is your signature. The car they are financing, the lease they are signing โฆ if your signature is on it, you are on the hook. If they pay late, your credit could be affected. And should you need a loan, this obligation will count as your debt for purposes of determining eligibility. Student loans can be particularly risky. In many cases, they canโt be erased in bankruptcy. If you have already co-signed on a loan, itโs important to check your credit regularly to see how itโs affecting your credit. You can get a credit report summary updated every 14 days on Credit.com to watch for important changes.
6. Failing to Have a Plan B
You probably hope or assume your good health (and that of your spouse, if you are married) will continue. You may be planning to stay with your current employer until you reach full retirement age. But people fall ill, or they get laid off before they planned to leave the workforce. Do you have a reserve parachute? Your standard of living wonโt be as high, but knowing that you have a plan can make the situation a little less worrisome.
7. Poor Investment Choices
Even if youโve managed to sign up for the 401(k) at work or to open an IRA for yourself, choosing the wrong funds or failing to diversify can set you up for failure. A target-date fund can be useful, but only if you choose the appropriate target. (If youโre in your 50s and choosing a 2050 target retirement date, you may get really lucky and see big gains โ but you could also see big losses and not have much time to recoup them.) Likewise, itโs smart not to put all your nest eggs in the same investment basket. Do your own research or find a planner to find a mix you are comfortable with and that is appropriate for your age and goals.
8. Not Making Changes When Needed
Are your investments changing with your goals? And are you keeping track of all of your investments? If youโve had several jobs (and several 401(k)s), itโs a good idea to do some consolidation. Keeping track of funds in several investment houses can make figuring out minimum withdrawals much more difficult once you are retired. Keep accounts organized.
9. Taking Social Security As Soon As You Can
In many cases, itโs better to wait. Your payment will be higher, although if you take it younger, you will get it for more years. Claiming it the minute you can may be tempting, but if you come from a family with a history of people living well into old age, consider whether you think the smaller checks will be worth it. (You can calculate a โbreak-evenโ age of how long you would have to live to collect as much as you would have had you started younger โ so that checks from then on truly are additional money.) Conversely, if no one in your family has ever turned 80, you may want to opt for the earlier payout. And, of course, your financial situation when you retire will have a say. If you canโt make ends meet without Social Security, then you should take it.
Another mistake? Making all your plans โ including retirement โ for later. A life of sacrificing for a โlaterโ that may or may not come is not much of a life. They key is balance. Weโre not suggesting you never take a vacation, never give to a cause that is close to your heart or buy the car youโve desperately wanted (and can now afford) so that years of self-denial will pay off someday โฆ maybe. But it is good to know that if you live a long life, youโll have the financial resources you need.
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