If you want to retire comfortably (and many Americans believe they are preparing to do so in the best way possible) chances are good that you’re just not making the returns you need in order to retire when you want to.
Often, the obstacles we face have more to do with the mistakes we make when it comes to investing for retirement. The problem is most people have no idea whether or not they are not on the right plan towards building their retirement wealth.
Retirement planning can be tricky for a few reasons. The first reason is that a lot of different factors affect how you plan for retirement. These include things like your salary, how much you are saving, the investment returns you’re getting currently, and the benefits you’re getting from your retirement account. Another factor is that everyone’s actual retirement plan is different. This leaves things very open to varying opinions and options when it comes to what you should do with your money.
Generally, retirement planning is about timing, and about not losing money — which is Rule #1!
That brings me to the question of, “What’s the best way to save for retirement?” The best way is to learn to invest. Find companies that you love and understand, and buy them when they’re on sale. When you do that, you’re almost guaranteed to not lose money.
There is no one-size-fits-all retirement plan for everyone, but there is a place where everyone should start.
With that in mind, here are 5 retirement mistakes to avoid – and what to do if you’ve found yourself in a situation where you’ve made any of them.
1) You Haven’t Saved Enough for Retirement
Mistake number one is that you haven’t saved enough or that you haven’t saved at all. When I first started investing, I hadn’t saved anything. But, the money that you invest is going to make you more money than anything else in your whole life. The earlier you start, the better.
Crank down your expenses, and crank up the income. Every dollar you can get into that retirement account now is going to make a huge difference for you down the road.
2) You’re Borrowing From Your Retirement Money to Pay Expenses
Mistake number two is that you are borrowing from your retirement money to pay your expenses. You can’t do this. Spend money on only the things you need. People often make the mistake of lifestyle creep. This is what happens when you start to make more money and you buy a more expensive car, or house with it. Quit trying to impress people that you don’t like anyway.
If you’re spending out of your retirement account, it is crucial that you leave that alone. If you spend that money you’re going to get penalized by getting taxed. Neither of those things is a good idea.
3) You’re Paying Too Much Interest on Bad Debt
Mistake number three is you’re paying too much interest on bad debt.
First of all, you shouldn’t be paying very much interest right now. Interest rates are at historical lows. If you’re paying 18% interest then something very bad is happening.
Forget about investing if you have a lot of credit card debt. The first thing you have to do is get rid of that bad debt. If you could make 18% a year, you’re doubling your money every four years. You don’t want to double someone else’s money every four years.
Another kind of bad debt is when you’re borrowing money to buy junk you don’t need. Don’t be borrowing money to go to the mall. That’s mall investing, and that’s not a great idea.
Save whatever you have to pay down your bad debt as fast as you can.
4) You’re Becoming Inactive Physically and Socially
This one doesn’t have to do with money, but with your well-being. It’s easy to become inactive physically and socially. This will play a big part in your retirement years.
You’ve got to be active physically and you’ve got to be active socially. For example, there’s a retirement community down in Florida, called The Villages, which has 110,000 seniors, and what they all have in common is they’re socially interactive and they’re very physically active. They have something like 100 golf courses down there. When I went down there to play polo 3,000 people came out to watch and they all wanted to learn about the game.
Staying active and social is so important, especially in retirement.
5) You’re Not Taking Investing Seriously Enough
Mistake number five is that you’re not taking investing seriously enough. This one happens to a lot of people because they just don’t think they can do it.
In our podcast with my daughter Danielle, she admits that she doesn’t take investing seriously (yet). She didn’t even want to learn how to invest. But, that’s all about fear and not knowing where to start.
Think about buying stocks like making any meaningful purchase. You’d do a ton of research before buying a new car or a new house, right? You can handle this. Investing is no different than that. When you take it seriously, it’s going to change your life.
Are you making or have you made any of these retirement mistakes? How are things going for you?
How Much Do You Need to Retire?
By the way, to learn how much money you’ll actually need to save to be able to retire, I’ve built this fabulous free retirement calculator. You’ve got to go take a look at it. It’s the best I’ve ever seen on the net. All you’ve got to do is just click on the below, and you can go right to it.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.