6 Savings Mistakes Retirees Almost Always Regret
Sipping cocktails with your toes in the sand may seem like the perfect retirement, but will you have enough money to live out your dream? Retirement approaches quicker than most people realize and if you aren’t careful, you may not have enough to retire when and how you truly want.
Most retirees have some regrets when it comes to their nest egg. Many wish they would have started saving sooner or invested more. In order to avoid these common pitfalls, we put together a list of six savings mistakes retirees almost always regret. Read on to learn how to ensure you live out your golden years just the way you envisioned them.
Not Starting Early Enough
The most common regret that retirees have is not saving enough money. According to Annuity.org, 44% of retirees say they wish they would have begun investing sooner. The sooner you begin investing in your retirement, the more you will have when the time comes to kiss your morning commute goodbye.
Investing early can help you meet your retirement goals earlier because it takes advantage of compounding interest. As explained by Associated Bank, beginning to invest in your retirement in your 20s and 30s is ideal to ensure that you will have enough money down the road. Compounding interest refers to when “you reinvest any interest gained on an account back into the account, leading to a cycle of gains over time.”
Not Taking Advantage of Employer Match Benefits
If you are lucky enough to work at a company that offers matching employer contributions, you should be taking full advantage of the free money.
As described by Paychex, matching employer contributions refer to when an employer agrees to “match a percentage of employee contributions up to a set portion of total salary, or contribute up to a certain dollar amount, regardless of employee salary.”
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It is important to understand the rules regarding your company’s employer match benefits and to always maximize the option. For instance, if your employer matches up to 6%, you should be contributing the full 6% if you are able.
Withdrawing Early
It can be tempting to withdraw retirement funds early to get out of financial hardship, but the long-term repercussions may be severe. Depending on the situation, you may not only incur a penalty, but you may also risk not having enough money in your nest egg to retire the way you had hoped.
Leaving your retirement funds untouched is the best way to ensure that you have all of the money you need when you quit your 9 to 5.
Making a Large Purchase
Another common regret is making a large purchase too close to retirement. Instead of putting money away, too many retirees decide to buy a large asset. Call it a mid-life crisis or simply a desire to pursue a hobby — either way, it can have costly consequences.
Saving money for retirement should start early, but it doesn’t mean you should stop later in life. The more conservative you are with your finances, the longer your retirement fund will last. Therefore, hold off on any impulsive buys until you are sure that you can afford them in retirement.
Not Diversifying
Far too many retirees are left empty-handed because they failed to diversify their investments. If your portfolio is overconcentrated in one sector or industry and that industry fails you could suffer unprecedented losses.
One of the biggest examples right now is the tech industry. As reported by Forbes, tech stocks dropped over 30% last year. With continued layoffs and high inflation, it is unclear whether this year will be much better. Retirees with lopsided portfolios that heavily favored this sector may have seen jaw-dropping drops to their bottom line.
A diversified portfolio will be able to withstand market volatility in an individual sector. As always, it is a good idea to speak with a financial advisor to determine what you should invest in.
Not Utilizing a High-Yield Savings Account
Finally, many retirees fail to utilize high-yield savings accounts. While keeping some money in a savings account for liquidity purposes is advisable, retirees should pay close attention to what type of account they are using. A regular savings account will give you little to no return on your money. With high inflation, your money can lose value quickly.
A high-yield savings account, on the other hand, can help you earn higher interest while still keeping your funds accessible. Most financial institutions offer high-yield savings accounts, but they are even more popular at non-traditional banks. Before putting your money in one, however, you should check on things like minimum balance requirements and whether the bank is a member of the FDIC.
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