Save Now, Retire Smart: Common Mistakes to Avoid When Planning for Retirement

Millions of Americans leave or enter the workforce every year. While some will be getting their first job, others are thinking about what is next. No matter if you're earning your first promotion or dreaming about swapping break time for play time with the grandkids, these two groups have something in common.

Both are working towards retirement.

Saving up for retirement takes years of preparation. Many spend decades setting aside money and planning for long-term financial security. But ultimately, retirement is more than just saving. It requires some strategy. To further solidify your financial future and learn how to retire smart; avoid these common mistakes people make when planning for retirement.

Don’t Lose Out on Free Money

Onboarding can be an overwhelming process, but it’s an important part of securing your financial future. During the retirement portion of employee orientation, it’s pivotal that you are taking full advantage of your employer’s match!

Employer match is a contribution employers make to a retirement plan based on how much the employee contributes. This means that your employer could duplicate your contribution up to a certain percentage. For example, if your employer's match is 3%, you should contribute at least 3% of your paycheck to your retirement plan.

If you aren't taking full advantage of your employer's match, you'll lose out on “free money”, and it will take you longer to get to your retirement goals.

Work Towards Financial Freedom

Life comes with big decisions and big purchases. However, it’s a good idea to try to pay off any kind of debt before you retire.

Once you retire, you will transition to a fixed income. Based on the total amount of savings you have in your retirement plan that will be dispersed and budgeted on a month-to-month basis. If you bring debt with you into retirement, it can put stress on the monthly budget.

To ensure you walk into retirement debt- free, prioritize paying off high-interest debt:

-Mortgages

-Car loans

-Credit card balances

-Personal loans

By carrying debt repayments into retirement, it can weaken your monthly cash flow. These burdens also limit spending flexibility for unexpected expenses or fun purchases. Saving money is crucial, but paying off debt before you retire will help preserve your monthly income.

If you’re beginning to think about transitioning towards retiring, it’s wise to create a debt-reduction plan. Make goals or budget to start paying off high-interest loans such as mortgages, then work through your remining loans. If you are unable to pay off all of your debt, consider how debt payments will fit into your retirement budget.

For many, you will have to learn how to budget on a fixed income. There are constraints and regulations on when and how you can take advantage of tax opportunities or withdrawal times. Luckily, you don’t have to figure it out alone.

No Need to Fear, Help is Here!

Another common pitfall people make for retirement is not seeking financial guidance.

When people think of retirement, savings is often the first thing that comes to mind. Throughout your whole career, you’re encouraged to set aside money for the future. However, there is more to retirement than savings.

When you retire, there are a plethora of decisions you have to make: taxes, social security, Medicare, investments, estate and more. While you may be well-versed in financial systems, it's still key to consult a financial advisor on these decisions. Some friendly financial guidance can help you protect your money and keep you out of trouble.

There are a couple of scenarios that are preventable with some financial guidance:

Claiming Benefits at the Wrong Time. The time to claim social security is not the same for everyone. While you may want to claim this benefit as soon as possible, many may be able to increase their lifetime benefits by waiting longer.

Paying More Than Necessary. Being retired also doesn't guarantee lower taxes, your retirement income can come from several sources. When this happens, retirees may accidentally push themselves into higher tax brackets leading to higher taxes.

Missing Out on Tax Planning Opportunities. Some financials decisions are best made at specific times. For instance, overlooking Roth conversions, timing out when to withdraw from certain accounts, or managing capital gains all have time periods when they can be fully optimized.

Speaking with a qualified financial advisor can help you bring these opportunities and more to the forefront. Alongside retirement strategies, a financial professional can help answer bigger questions such as how long your retirement income will last, when and how much to withdraw from accounts and inform you of other risks that can affect your retirement plan.

Bottom Line - Steps You Can Take Towards Retiring Smart

Wherever you are in your career, it’s never too late to start thinking about retirement. Check your paystub to see if you are fully optimizing your employer's match. Also, start planning to pay off as much of your debt as possible to launch into retirement debt-free.

There’s no shame in talking to someone who is an expert. Everyone has different financial circumstances. One retiree’s financial situation will be different from another retiree’s financial standing. It's also good to have a personalized plan. Your advisor will also keep you on track with withdrawals and other tax opportunities.

Curious whether you are taking the right steps for retirement or need to reevaluate your current plan?

Contact Kembel Tax to schedule a visit at our Roanoke or Salem location today to plan for your future and retirement adventures in the making.

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