Retirement Mistakes People Make at Every Age

Way back when, retirement security was a cemented concept that you could usually rely on. People of corporate America worked until their early 60s, earned pensions and collected Social Security.

Nowadays? Not so much.

Some people expect that they can rely on their own savings while others worry that Social Security won’t be a viable option anymore. Workers today must view the income they earn throughout the entirety of their careers as money to last them into their 80s and thereafter.

It’s a tricky recipe to follow. Stumbling into student loans, having children, health emergencies and home obligations can get in the way of saving. According to the Employee Benefit Research Institute, about 40 percent of baby boomers and Generation X-ers risk running out of money in retirement.

Consider these myths, one for each decade of the saving years:

20s: I need to pay off my student loans ASAP.
Some young workers think it’s smart to use their meager paychecks to aggressively pay off student loan debt before they start saving for a phase of their life that is still decades away. Unfortunately, this means giving up the greatest advantage they have when it comes to saving for retirement: time. A dollar saved when a worker is in his or her 20s can be worth five times the same dollar saved 20 years later.

Set a plan to increase the amount saved by 1 percentage point every year until it’s at least 10 percent. If this isn’t feasible, workers should increase their savings rate each time they get a pay raise.

30s: I should cash in retirement savings so I can buy a home.
Some choose purchasing an expensive house rather than a comfortable retirement. After managing to put away a good amount from the previous years, some people find themselves tempted to use the cash now.

Tax laws allow workers to use their retirement savings to buy their first home, further adding to the temptation. The Internal Revenue Service allows penalty-free withdrawals of up to $10,000 from Individual Retirement Accounts for first-time homebuyers.

Those who struggled to save for a down payment may have a hard time covering maintenance, taxes and other expenses that arise as a result of home ownership. The $10,000 would be worth much more in retirement if it had remained invested where it could grow and compound interest.

40s: Kids’ college is the ultimate priority.
Dipping into retirement funds so your children can attend school may be a red flag. Think of it this way: there are many ways to pay for college, but there are far fewer options to fund your retirement.

Some teens may be able to work to cover expenses while they’re in school. Families may also look into less expensive options such as community colleges, in-state colleges or colleges with lower tuition overall.

50s: Retirement is a decade away, I have time to figure it out.
Retirement is approaching faster than you think. Workers should manage their expectations for a realistic retirement. Some might need to take on part-time jobs because they haven’t saved enough.

Advisers say that people should start setting up for post-retirement jobs in their 50s by building a consulting firm or freelance business that may provide more flexibility and added income in retirement.

If you’ve been saving throughout the years, now is the time to step it up. This includes 15 percent of pay and making additional catch-up contributions of up to $5,500 that the IRS allows for people ages 50 and up.

60s and older: Once I spend the money, I’ll have nothing left.
Some people think that once they stop working, their only choice is to scoop from their savings until it’s all gone. Pre-retirees and retirees can still make adjustments to help their savings last. Some may decide to work a little longer than anticipated, or take on part-time work so they can put off the need to tap their retirement savings and stash more money away.

Remember, people are living longer than previous generations. This means you can plan on saving for another 25 to 30 years, if not more. Some retirees invest instead of moving their funds primarily to cash. Some invest in a mix of bonds and dividend-paying stocks that can create a stream of income, and stock exposure may help boost returns in the long run.

Remember these myths and know that no matter your age, the need to think about retirement savings applies to you. For more information, contact an estate planning attorney at Elzufon today.

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