Miscalculating retirement savings goals
Do you really know how much you need to save for retirement? “A general rule of thumb is to have about 12 times your final salary saved by the time you retire,” said Steen. This amount assumes you will retire at 65. But considering you could be saddled with additional medical expenses in retirement — and that you’ll need to accommodate for any financial shortfalls — you might want to save more. There are strategies to follow to hit your savings goals.
Counting on your employer
Company pensions are no longer the norm. Mark Thomas, senior vice president of Aon Affinity Insurance Services, said, “Employers are switching employee benefits from so-called ‘defined benefit plans’ (a pension) to ‘defined contribution plans’ (401k).”
Sadly, this means you can’t rely on your workplace or the government to support you with the income you need for retirement.
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Neglecting the employer match
If your company offers retirement matching, make sure to take full advantage of it as soon as you are eligible to receive the benefit. The Vanguard Group recommends contributing 12 percent to 15 percent of your pay, including any employer match, to reach your retirement goals.
Leaving retirement contributions out of the budget
When you’re putting together your monthly budget, make space for your retirement contributions so you can stay on track with your goals.
“Build a budget and stick to it,” said Thomas. “Most people are spending more time planning their vacations than their retirement.”
Starting to save too late
Make compound interest work in your favor by contributing to your retirement fund as early as possible. Each dollar you contribute at the age of 20 is the equivalent of earning $5.84 by retirement at age 65, according to Vanguard. Each dollar you stow away at age 45, however, will only be worth $2.19 by retirement. If you’re investing in your 20s, learn what strategies you should be following.
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Claiming Social Security too early
You can start collecting Social Security benefits when you turn 62, but you won’t get the full benefit until you reach your full retirement age.
Tom Foster, national spokesperson at MassMutual Financial Group, shared the results of a MassMutual Retirement Services study that showed “those who took concrete steps, such as calculating the best time to collect Social Security, targeting how much money they would need to afford retirement and increasing savings, report feeling more financially secure in retirement.”
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