Saving for retirement is important. If you don't do it, you might end up unbearably cash-strapped later in life.
While you can expect to get some income from Social Security once you retire, those benefits won't come close to replacing your wages in full. Also, Social Security cuts could be on the table in a little over a decade, which means future recipients might have smaller benefits to look forward to.
If you've already prioritized retirement savings, you're doing a smart thing. But here are three big mistakes you'll want to avoid in the course of building your nest egg.
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1. Assuming $1 million in savings is enough
Many people land on $1 million as their optimal retirement savings target, and it's easy to see why. That $1 million figure is not only a nice, round number but a very impressive one at that.
But rather than assume you'll be good with $1 million in savings, run the numbers based on your personal expenses. You may find that $1 million actually won't cut it if you're hoping to travel a lot, live in a more expensive part of the country, or not hold down any sort of job as a retiree.
2. Not increasing your savings rate year after year
It's easy to get into a pattern of saving a certain chunk of your income every year -- especially if you have a 401(k) and have your contributions deducted automatically from your earnings. But if you don't make an effort to increase your savings rate over time, your nest egg might stagnate.
Instead, at the very least, aim to allocate your entire raise to your retirement nest egg each year. That way, you'll be contributing funds you were never used to spending in the first place.
3. Not investing your savings aggressively enough
If you're limiting your spending to free up money for your retirement plan, you're doing a great thing. But it's not enough to just pump money into an IRA or 401(k). You also need to invest that money in a manner that will allow it to grow nicely.
Some people play it safe when it comes to investing their nest eggs because they want to limit their risk. But in doing so, you actually take on a different risk -- the risk of winding up short on savings because your money didn't grow at a fast-enough pace.
If you're worried about investing your retirement savings in individual stocks, it could be a good idea to load up on broad-market index funds, instead. That way, you'll get a nice amount of exposure to the stock market while limiting your risk of taking major losses in the event of a single company faltering.
Saving for retirement is an essential thing to do if you want your senior years to be comfortable and devoid of financial worries. But do your best to steer clear of these mistakes along the way so you don't wind up unhappy with your nest egg once your retirement rolls around.
