Ideally, you'll want to kick off retirement with a nice amount of savings. Social Security might only pay you enough to replace 40% of your former earnings. And seniors tend to need a lot more money than that to maintain a comfortable standard of living.
But if you're not careful, a few mistakes in the course of saving and investing for retirement might ruin your senior years. Here are a few blunders to avoid at all costs.
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1. Waiting to save
Many people don't start saving for retirement until their 30s, 40s, or even beyond. And that's understandable.
In your 20s, you may be busy trying to pay off student loans and build an emergency fund. In your 30s, you might be consumed by mortgage payments and childcare costs. And in your 40s, you may be scrambling to build up college savings so your kids don't have to rack up the same debt you did.
But if you miss out on those critical years of savings, your nest egg might fall short. And that could, in turn, make your retirement much less enjoyable.
Let's say you start saving $300 a month for retirement at age 25 through age 65, all the while earning an average annual 8% return on your investments. That's a bit below the stock market's average. All told, you'll be looking at a nest egg worth almost $933,000.
But watch what happens if you delay your savings efforts by even 10 years. If you don't start investing $300 a month for retirement until 35, at 65, you'll only have about $408,000, assuming that same return.
2. Pausing contributions often
When life starts to get expensive, you may be inclined to hit pause on your IRA or 401(k) plan contributions. But that could end up hurting you big time.
For one thing, any time you miss out on funding your retirement account, you miss out on the chance to grow the amount you'd normally contribute. But also, in the case of a 401(k), pausing contributions could mean missing out on an employer match. That's the same as saying no to free money.
3. Failing to diversify
You'll need a solid investment portfolio to generate nice returns in your IRA or 401(k). But one thing you don't want to do is invest all of your money in the same exact manner. If you don't diversify, your portfolio may be more vulnerable to larger losses in the event of a stock market downturn, or in the event of an industry-specific meltdown.
IRA savers may be especially likely to fall into this trap, because IRAs let you invest in individual stocks. So it's important to make sure you're choosing to put your money into companies across a range of industries. Go all in on bank stocks, for example, and your nest egg might suffer if that particular industry takes a tumble in the years leading up to your retirement.
You deserve to retire with enough money to enjoy that period of life to the fullest. And avoiding these mistakes could be your ticket to doing just that.
