Putting money away and saving up for retirement is one of the best ways to ensure a stable financial future and a comfortable retirement. Unfortunately, after years of savings and making sacrifices, certain mistakes can jeopardize your future financial stability. To prevent all of your hard work from going to waste, avoid these common retirement money mistakes people make.
Taking money out early
When financial times are hard, it may be tempting to look toward your retirement fund as a source of extra cash. However, removing money from your retirement account early is one of the biggest mistakes you can make.
Unless you qualify for an exception, most traditional individual retirement accounts (IRAs) charge a 10 percent penalty for early withdrawal if you’re under 59 ½ years old. In addition to the penalty, you’ll also have to pay taxes on the amount you take out, which will lose you a considerable amount of money in the process. Plus, by taking money out early, you’ll also lose the potential compound profit that those funds may have generated over time.
As such, dipping into your retirement fund early should only be done as a last resort. Unless you need to take out money from your retirement fund early to prevent bankruptcy or foreclosure, doing so should be avoided.
Not budgeting for potential medical expenses
Another common retirement money mistakes people make is not budgeting for future medical expenses.
Unfortunately, the older we get, the more medical issues we typically experience. As such, always budget for the cost of potential medical procedures when planning for retirement.
While Medicare and supplemental insurance will cover a considerable amount of medical costs, additional costs such as uncovered procedures, deductibles, and copays can quickly burn through your retirement fund if you don’t budget accordingly.
Not accounting for inflation
Each year, costs continue to rise. As such, it’s important that your retirement fund has a little extra padding to make sure you can live comfortably when it comes time for you to retire.
While it’s pretty much impossible to know exactly how much inflation will spike several years or decades down the line, most retirement plans budget for a default inflation rate of around three percent.