Despite the general optimism about their retirement savings, most Americans still feel they have enough money to retire. However, even with automatic contributions, making ends meet in your golden years can be challenging. To ensure you have enough money to retire, get rid of these bad habits. They can potentially sabotage your chances of achieving financial security.
Spending Now Rather Than Saving for Later
According to Erik Olson, a financial planner, it’s easier to focus on the present instead of planning for the future. He said that finding room in your budget for retirement may seem unimportant when bills are due, but it can be done by taking a good look at your spending. The sooner you start contributing to your retirement savings, the more time you’ll have to grow them. Olson noted that if you start saving and investing at the age of five to ten years, your entire portfolio can grow to be more than enough for retirement, even if you continue investing and saving for decades.
Underestimating How Much You’ll Need to Retire
Although you’re saving for retirement, it’s still important to figure out how much money you’ll need to live comfortably in old age. Doing so can help you avoid having a financial emergency.
Getting a financial planner can also help you avoid getting caught off-guard when planning for your retirement. Olson noted that having a clear understanding of your financial situation can help you make informed decisions. An online calculator is one of the most effective ways to determine how much money you’ll need to retire. This can be done by using various retirement savings tools, such as Fidelity MyPlan.
Only Investing in the Best-Performing Mutual Funds
Michael Hardy, a financial planner, says that many people select the best-performing mutual funds in their retirement savings when picking a lineup. However, this strategy is a mistake. The best-performing funds will eventually become the worst, and the best will eventually become the best. This means that if you’re planning on investing in a fund that’s performing well, you might end up getting out of it as it starts to crash. If your retirement plan provides target date funds, then this type of fund can help you achieve your goals. According to Hardy, these funds can provide a more conservative outlook as you get closer to retirement.
Misunderstanding What Diversification Means
Despite your efforts to save for retirement, it’s still important to figure out how much money you’ll need to live comfortably in old age. Doing so can help you avoid having a financial emergency. Getting a financial planner can also help you avoid getting caught off-guard when planning for your retirement. They can provide you with a clear picture of your financial situation and a plan in place. You can also get a general idea of how much money you’ll need to save by using an online calculator, such as the one offered by Fidelity MyPlan.
Saving Only When the Market Is Doing Well
One of the most common mistakes people make when planning for their retirement is only putting money into their retirement accounts when the market is doing well. According to Hardy, this strategy can lead to them paying a higher price for their savings. He also said that instead of waiting for the market to do well, you should start setting aside a set amount from every paycheck. This will allow you to get a better return on your savings.
Overreacting to Market Volatility
It’s also important to avoid getting carried away by the market’s downturns. Although it’s hard not to be tempted to sell some of your stocks when the market is down, this is the time to put the brakes on your emotions. According to Shannon McLay, the founder of The Financial Gym, it’s easy to get emotional watching the market decline. However, it’s also important to remember that before you start trading in your retirement accounts, it’s important to maintain a disciplined approach. According to McLay, history has shown that the markets bounce back. It’s also possible to delay your retirement by a couple of years. However, holding on to your assets is better than cashing out after the market has taken a big hit.