In your twenties, retirement seems pretty far away. After all, you’re young and have a lifetime of working left before you’ll be free for your golden years. I can say this from personal experience since this is especially relevant to me, given my situation.
No matter how far away your sixties seem, though, those years will pass in the blink of an eye (from what I’ve heard at least). You don’t want to wake up one day in your forties and realize that you don’t have a solid financial future planned. It’s scary, and it’s closer than anyone realizes.
It’s never too early to start planning for retirement. Whether you’re only starting to think about retirement or you’ve started taking some steps, it’s a good idea to review. You don’t want to think you’re on the right track only to discover that you’ve made mistakes along the way. Take time to learn and ask questions. Remember: you only have one life to live, so avoiding mistakes helps you get it right!
Here are five common mistakes that millennials, such as myself, make when it comes to retirement.
It’s too easy to delay planning for retirement. You have legitimate needs for your money now such as a child or student loans, and it’s easy to justify not taking the first step.
You can tell yourself that you’ll start when you’re thirty. Or thirty-five. Or forty. Maybe you’ve decided to wait until you have a house and a car and X, Y, or Z before you start saving.
Justifying your delay doesn’t make it right. You are responsible for your future...not the government, your [future] spouse, your parents, or anyone else. You have to start creating a financial plan that’ll help you live the retirement of your dreams.
So take time to think about it. What do you want life to look like when you’re retired? Make your vision, and then sit down with a financial advisor to decide what it’ll take to get you there.
Keeping up with the Joneses may make you feel good in the short-term. After all, you’ll drive a fabulous car, live in a beautiful house, and have all the gadgets you could ever want. Everyone around you will think you have it all together.
But, if you’re sliding the credit card to keep up, you’re only kidding yourself. You do have to eventually pay for all those niceties. Do you want to spend years paying off that purchase plus interest? I wouldn’t. That’s a lot of money you’re giving your credit card company just for the convenience of buying today instead of saving up the cash.
Before you use your card for anything, or take on any additional debt, stop and think. Is the purchase really, truly worth it?
Do the same with your student loans. Take on a job, work a side hustle, or go through your course load at a slower pace to get through without the burden of student loan debt that so many of your peers are discovering. It is definitely a lesson that everyone should keep in mind throughout school.
Don’t bury yourself in debt. Your financial future will be a lot brighter if you don’t have to spend most of your income making payments.
Don’t make the mistake of letting someone else make all your financial planning decisions. If your employer offers a retirement plan, don’t just sign on the dotted line and forget about it. Don’t meet once with a financial planner and then turn that person loose with your funds without holding the reins.
Take an active role in your money. Understand the basics of investing and risks. Look at market trends to know your projected return on investment.
Ask where your money is being invested. Don’t let “not knowing” stop you… that’s what your advisor is for!
You can’t take the role of observer when it comes to your money. Get informed, asked questions, and participate in the process. After all, not a single person in the world cares more about your money than you do. That means you are the one who has to take charge.
When you’ve got a retirement account rolling, it’s easy to want to see it as a saving account. There’s money in there, right?
Well, yes and no. The money is there, but taking it out before you retire comes with heavy fees and penalties, not to mention tax repercussions. You’ll end up with just a fraction of what you take out.
Spare yourself the heartache and build a savings buffer that’s easier to access when you need it. That way, you won’t have to pull money from your retirement fund in order to cover car repairs. Or replacing your furnace unexpectedly. Or paying the rent when you’re between jobs.
Life happens, and you will need money to cover things. Decide today to create an emergency fund that’ll help ease the financial strain when these expenses pop up. Because they will pop up.
Then -- and this is key -- don’t touch it unless an actual emergency happens.
Many companies will match employee contributions to their retirement accounts up to a certain percentage.
This is free money for you. If your workplace offers this, and you aren’t taking advantage, you are leaving incredible amounts of money on the table.
With the power of something called compound interest (the more you have in the account, the more interest you get paid; the more interest you get paid, the larger your account is; and so on), the 3% or 5% you put into your retirement today could turn into hundreds of thousands of dollars by the time you retire.
Seriously. It’s that big of a deal.
Don’t let yourself off the hook for retirement. Speak with someone in your HR department about setting up an automatic withdrawal. Send 5% of every paycheck to your retirement account automatically. That way, it’ll never hit your bank account so you won’t even miss it.
As millennials, time is on our side. We have time to ensure the retirement of our dreams can become the retirement of our reality if we avoid the mistakes listed above.
At the end of the day, we can’t sit back and wait to get started. The time for action is now. So let’s take a baby step today, and when we look back in twenty years, we’ll be amazed at how far we’ve come!