Retirement planning will differ for each person because they all have unique situations that will determine how much one should save or when they can retire. There is no single “right” way to approach retirement; after all, nobody has all the right answers. That being said, there are wrong ways to prepare for retirement. These mistakes may seem harmless at first, but they can actually cause a great deal of long-term damage. Fortunately, however, if you catch these blunders soon enough, they’ll be easy to correct. Today on the blog, I’ll cover a couple of common retirement mistakes to avoid.
Forgetting about the impact of taxes on retirement income
You won’t be paying taxes on the initial contributions to a tax-deferred retirement account, such as a 401(k) or traditional IRA, but you will owe income taxes once you start making withdrawals in retirement. If you forgot about these taxes, it can have a significant effect on your financial future. It could lead to you withdrawing more money than you anticipated from your retirement fund, which can then result in running out of money sooner than you expected. An increase in spending during retirement may put you in a higher tax bracket, meaning you may owe the IRS even more of your savings. Depending on where you live, you might owe taxes on your social security benefits at the state level, too. With all of these taxes, that could add up to a lot of retirement income that you won’t be able to spend. Preparing for them helps to prevent you from discovering an expensive surprise later down the road.
Not considering retirement account fees
Since you’re paying fees when you invest savings in your 401(k) or IRA, it’s best to understand what you’re paying for. Even paying a fraction of a percentage more can add up to tens of thousands of dollars over a lifetime. Talk to your plan administrator and check your plan’s statements to find the expense ratio to find out what you’re paying in fees. If you find that you’re paying higher than average fees, consider switching to a less expensive option.
Absolute Retirement Solutions does not provide tax, legal or estate planning advice or services. Always consult with qualified advisors concerning your own situation.