Saving enough money for retirement can be confusing and intimidating, which can prevent people from thinking about it altogether. This lack of planning is just one threat to your future’s financial security. Whether you’ve been planning for years or you’re just starting out, here are seven threats to your retirement to keep in mind.
1. Not Starting Early Enough
Time is the biggest factor in having the funds needed for retirement. The sooner you begin saving, the less you have to save each month. Additionally, you gain the advantage of compounding which essentially means you can earn dividends on your dividends.
A general rule is that with average investment returns, you can double your money every 7 to 10 years, which is the major reason starting in your 20's is critical versus starting in your 50's.
2. Not Saving Enough Each Month
First and foremost, if you have a 401k plan, you should start at the company match; otherwise, you are leaving free money on the table.
A good guide to have is that you should be saving at least 10% of your income for retirement as a minimum. Your goal is to have 10 times your salary in your retirement fund when you retire if you want to continue to live your current lifestyle.
3. Considering Your Health In Retirement
Because we are living longer, health care costs in retirement are requiring an increasing portion of retirement funds which impacts how much money you need.
Being healthy heading into retirement is extremely important, as it is the best way to protect your retirement funds from being used for medical expenses.
4. Not Factoring in Inflation
What it takes to live the way you are living today will likely increase 2-3% per year. If you have 25 years of living in retirement, your lifestyle could cost nearly 50% more than it does today.
5. Retiring Too Early
Retiring too early might mean a loss of key benefits such as medical insurance and 401k matching that can be a negative impact on your retirement earnings.
Starting other benefits early such as social security will also lessen your potential earnings from these benefits requiring more dollars to be saved for retirement.
6. Not Having a Proper Mix of Investments
Being too conservative early in life and then having too much risk later in life is a recipe for having less retirement funds than you should have.
Work with a financial planner and make adjustments to your investment mix at regular intervals so you can have the best earnings possible during your entire retirement savings period.
7. Having Significant Debt Heading Into Retirement
The goal should be to be debt free or as close to debt free as possible when you decide to retire. Having significant credit card or mortgage debt can be a drain on your retirement savings.
When you are less than 10 years to retirement, your focus needs to be on reaching the goal of being debt free at least 2 years before retiring so you can build an emergency fund prior to retirement.