The use of your retirement fund is not a question of “if” but “when” because sooner or later, that money that you have been routinely socking away. The time will come that you would have to depend heavily on those funds because you would not have a steady income from a steady work to speak of. You might feel that you can work as long as it takes but you will never be able to predict the future.
It is possible that unforeseen circumstances can limit the number of years you projected to work like getting into an accident, getting sick or even having a different calling in life. After a few good years in a high-paying job, all your experiences points to putting up a charitable organization where you find yourself using your own money rather than earning off of it.
There are those who are planning to rely solely on their social security benefits while there are some people who have made diverse investments to make sure that they can live a comfortable life in retirement. This takes a lot of forward planning and years of dedication to make it happen. This is where a lot of people fall short and essentially struggle with retirement.
Gallup.com shares that people are expecting to be retiring at agr of 65 and this is a good number to plan for. You can base the amount that you need to save up every month based on your target retirement date. You can work back and see how you can reach your target amount which should be able to provide for your financial need in retirement.
Retirement account blunders
You need to keep an eye out as well on some of the most common mistakes that people make with their retirement funds. It is better to know them and be able to stay away before you commit the same blunders.
- Borrowing against your retirement fund. There are specific conditions to keep in mind when borrowing money from your retirement fund but this should be seen as an exception rather than the rule. You are saving for retirement not so you can have an emergency fund to take money out of every time you need one but so you can have funds to use when you do not have a steady source of income. It is possible but this should be considered as a last resort because once you pull money out, you are losing money on the penalty as well as the potential compound interest in the coming years.
- Not setting your contribution level. Once you start working, you have the chance to set your level of 401(k) retirement saving. You can choose the percentage that is automatically taken off the top before you even get to use the money. First things first, this is a good decision on your part because no matter how much you plan to be the one to save up, there will always be things that will seem more important and you end up using the money. But one of the things that you might want to do is to set up your contribution percentage to the highest possible limit. But you need to check as well your budget because it might affect your cash flow month to month.
- Foregoing an employer matching program. There are employees who are not taking full advantage of this perk if their company is offering a matching program. It is like throwing away free money because the company is willing to add to your 410(k) but only if you put in a required percentage. There are some companies offering a dollar to a dollar while some matches a few cents to a dollar. Regardless of how much, this is a great way to increase your retirement fund. One thing you need to carefully study though is your company’s vesting schedule. You need to check how many years you need to be with the company to get the amount your company has put into your 401(k) through the matching program.
- Putting your eggs in one basket. This is one of those perennial pieces of advice that you hear people give out and it actually helps you even with your retirement fund. Take what Bloomberg.com reported recently how Amazon offers their matching program through company stocks. This exposes the employees to industry risk and the company’s performance. On hindsight, this maybe how the company gets their employees encouraged to work hard because they know that it directly affects their retirement benefits. But you need to have a diverse portfolio for your retirement because putting everything in one place is a risky endeavour.
- Being too aggressive with your investment. Age is a great ally when you are young but a strong adversary as you get older and you need to take this context and apply it to how you look at investments and risk. You can be a risky investor when you are still young but as you get older, you need to slowly move to a conservative side. One of the common mistakes of people with their retirement fund is that they forget to switch their approach to investing that they expose their funds to risk as they get older. That risk comes with the possibility of a loss which is hard to recuperate when you get older. Taper off your investments as you get older and protect what you have saved up from losses.
What other retirees are doing
It is a challenge for some of the retirees to think of activities once they retire because they have been working most of their lives. If you nearing retirement or already retired, here are some ideas on what is keeping most retirees busy.
- Moving to a smaller house. WSJ.com shares that if you are looking to downsize your home, you need to do it sooner rather than later in retirement. There are a lot of reasons why retirees love to take up a smaller house. It works wonders with their cost cutting measures because a smaller house comes with lower bills and easier upkeep. It also helps their retirement fund by hopefully having an excess on the sale of the original house moving into the smaller one. This additional money can yield a few hundred dollars every month that you can use for retirement expenses.
- Retiring overseas. There are other retirees who wants to stretch their money even more by deciding to retire to another country where the dollar has more value. But as exciting this is, you need to make prior arrangements before packing up your bag and choosing a point in the world map to retire to. You need to at least have an idea of what you really want if it is a quiet and secluded place, a loud and bustling community or a beach-front property where you can stare are the sun, sea and sand for as long as you want. You then visit the place a few times before you make that leap.
- Travelling the world. There are ways to plan for travel in retirement and a lot of retirees actually spend a good amount of time travelling. Of course you need to understand that age slowly but surely will become a factor with travel because the time will come your body cannot do all the things you used to do. Embrace the opportunity to travel but remember that this is something you plan for ahead of time.
Building up your retirement fund in preparation for the time where you will no longer have a steady income is a challenging one. It takes years to build up your fund but it can take only a few mistakes to undo year and years of hard work. It is important to be aware of the most common mistakes consumers make to be able to steer clear of potential pitfalls in planning.