Some of the best people to learn from are those who have done something already. For retirement, that rule of thumb is quite often proven correct. GOBankingRates surveyed retirees to discover what financial hurdles current retirees are facing and what they would do differently if they had to do their retirement saving all over again.
Take a look at some of the most common retirement planning mistakes people make — and learn what you should do instead.
Started Saving Earlier
The answer to “When can I retire?” depends on when you started saving. GOBankingRates asked retirees what they would have done differently in their youth, and over 40 percent said they would have started saving earlier.
The sooner you start setting aside money, the sooner that money can go to work for you with the power of compound interest. Even if it’s just a small amount to get started, you can build good habits and build your savings over time. Click through to see how much you should have saved for retirement at every age.
Maximized Employer Plan Savings
Many employers offer matching contributions, which is essentially free money. If your employer matches your contributions per paycheck, make sure you spread your contributions over the entire year. Nearly 7 percent of retirees in the survey responded that they would take more advantage of their employer plans if they could do it over again.
Used Alternative Retirement Savings Accounts
Employer plans aren’t the only way to save for retirement. More than 7 percent of retirees wished they had explored alternative ways to save, such as an IRA or Roth IRAs. You have more control over the investments — and fees — that you pay in your IRAs.
Another common response when retirees were asked what they would do differently was to spend less. More than 20 percent of retirees chose this answer.
Saving a few dollars here and there might not sound like much, but over time, learning how to save can really add up.
Created More Income Streams
Depending on the person budgeting, how much you spend might not seem as important as how much you make. More than 14 percent of retirees surveyed wished they created more income streams while they were younger.
Examples of additional income streams include traditional side jobs. But, you can find more unique opportunities like BBQ judge, freelance writing and consulting for smaller companies.
Used After-Tax Retirement Savings Accounts
When you save money in traditional 401ks and IRAs, you pay taxes on distributions. Diversify your savings with Roth accounts, like Roth IRA and Roth 401ks. You don’t get a deduction for contributions, but qualified distributions come out tax-free.
Paid Off Debt Sooner
One of the biggest retirement struggles mentioned in the survey is getting out of debt. It can be tempting to think that making the minimum payment on your debts is good enough, but that’s not the case when it comes to building your nest egg. Paying off your debt before retirement saves you money and gives you more money to spend in your golden years.
Planned for the Retirement They Wanted
Everyone has a different idea of what they want their retirement to look like. The amount that you need to save could be very different from your neighbors or coworkers. Having a plan, or a financial advisor to help you plan, can help make sure you’re saving enough — but not so much that you’re not able to enjoy life now.
Getting a pay raise isn’t the only way to have more money to save for retirement: Staying healthy keeps more money in your wallet, as well. When you make your retirement plan, make sure you include taking care of your wellness, not just your pocketbook.
Diversification helps you manage your risk to a level that you’re comfortable with. In fact, more than 10 percent of retirees said the first thing they would do if they could do it all over again would be to diversify their investments more.
For example, if you’re comfortable taking on more risk in exchange for potentially higher returns, your portfolio might be weighted with more stocks than bonds. Another option is to look at safe investments that have a high return.
Saved With an HSA
Paying for healthcare is another common speed bump for retirement, according to the GOBankingRates survey.
If you have a high-deductible health insurance plan, you can contribute to a health savings account each year. The contributions aren’t taxed, the growth isn’t taxed, and, as long as you use the money for medical costs, the distributions aren’t taxed, according to the IRS.
Rebalanced Their Portfolio
Setting your portfolio’s composition isn’t a one-time activity. Over time, your risk tolerance can change, according to Fidelity. In addition, some parts of your portfolio will outperform others, so you’ll need to rebalance. Otherwise, the new risk of your portfolio could be drastically out of whack with your goals.
Looked Out for Fees
If you’re not careful, fees and expenses could be eating away at your retirement nest egg. According to Vanguard, 2 percent fees on average returns over 25 years could cost you almost half your returns. While you can’t expect to eliminate fees completely, be aware of what you’re paying and look to minimize your costs.
Stayed Realistic About Benefits
Social Security is not designed to serve as your only income in retirement — not even close. According to the Social Security Administration, benefits are only intended to replace about 40 percent of your income. Plus, depending on your total income, up to 85 percent of your Social Security benefits could be subject to income taxes.
Stayed Realistic About Retirement Spending
Many people rely on the 70 percent replacement rule, meaning you’ll need to have about 70 percent of your pre-retirement income in retirement. Certain expenses might go away in retirement, such as not having a mortgage to pay or children to subsidize.
For some people, however, they could end up spending more because they have more leisure time, so you must think about your personal financial goals.
Used Catch-Up Contributions
If you’re behind in your retirement savings, all isn’t lost. Beginning in the year you turn 50 years old, the IRS allows you to start making catch-up contributions to your retirement plans. For 401ks, you can put in an extra $6,000 per year. For IRAs, you’re allowed an additional $1,000.