With millions of Americans facing unprecedented economic turmoil from the Great Lockdown, it's quite possible you have financial concerns you are dealing with. But as long as your immediate monetary needs are met, it would be a real mistake to forget that saving for retirement is a lifelong project and shouldn't be neglected even when economic times are uncertain.
Unfortunately, many people aren't doing enough to ensure they'll have the financial security they deserve when they retire. And these three big red flags can offer some insight into whether you are one of them.
1. You don't know how much money you need
One of the most fundamental steps of preparing for retirement is figuring out how much savings you'll need. That's why it's so shocking that 60% of Americans haven't yet taken this step, according to one report.
If you're flying blind when it comes to savings, chances are you're not saving enough. To build the nest egg you need, it's important to have a concrete goal and monitor your progress over time.
2. You aren't investing in a tax-advantaged account
Tax-advantaged accounts such as a 401(k) and IRA make saving for retirement much more affordable. If you're in the 22% tax bracket and you want to put away $5,000 in an IRA or 401(k), it would actually only reduce your taxable income by $3,900 if you do it with pre-tax dollars.
If you're using a taxable brokerage account instead of taking advantage of the help the government provides for your retirement savings, you're only making life harder since your contributions will be that much more costly.
3. You don't have automated transfers of funds to your retirement account
When saving is something you have to choose to do each month, chances are good it won't get done. You'll probably find that you have more pressing immediate needs, so your retirement accounts always get shortchanged.
But with automatic contributions to your retirement accounts on payday, this problem disappears. It's easy with a workplace 401(k) since you can just sign up to have money withdrawn from your paycheck, and it's not much harder with an IRA as both banks and brokers allow you to make automated money transfers.
Once you set this up, your saving works on autopilot. But until you do, you must be really disciplined to make your plan work, and most people simply aren't very good at that.
Fix these retirement savings mistakes ASAP
These three big mistakes are fixable even if you don't have a fortune to invest. If you're eligible, open an IRA or sign up for your workplace 401(k) today, set a retirement savings goal, and start putting at least some money toward it. Once you start the process, you can always step up your savings when the coronavirus crisis ends to make sure you have enough for your later years.