Planning for retirement is crucial if you want to enjoy freedom and independence in your golden years. Plan correctly and you can spend your days traveling, gardening, or doing absolutely nothing at all. Make one or more of these three financial mistakes, however, and those retirement years may not seem quite as golden. Instead, you could find yourself pinching every penny, dependent on help from your children, or even delaying your chances of retiring altogether. Don't make these mistakes:
Delaying retirement savings until you pay off your debt
According to U.S. News Money, while some financial advisers support the idea that you should pay off credit cards and other types of debts before you start saving for retirement, they suggest that following this advice could lead to a costly financial mistake. They offer that since the majority of your retirement funds will come from the compound returns earned from the money that you have saved, delaying your retirement savings could significantly reduce the amount of savings you will accumulate over time.
Your house rich, but money poor
Although owning a large home in a prominent Atlanta community may seem like an asset that will grow in value during the long term, the payments that typically go with these types of houses can create a serious drain on your immediate cash flow. Not only is there generally an enormous mortgage payment each month, there are also higher property taxes and homeowners insurance to pay each year as well.
While it's true that home values typically rise each year, you may think that it's still a good investment for your future in the long run. When you consider the money you could free up each month by downsizing to a smaller, more affordable home, however, you might find you are spending money that you could use for investing in your retirement account instead.
Paying off a student loan with money from your 401(K)
Many parents want to help their children pay for college and will often take on the debt of paying off those student loans. Wes Moss, host of the Sunday morning radio show "Money Matters," said that using money from your 401(K) to pay off a student loan is never a good idea, however. Even if you are 59 ½ or older and there is no longer a penalty to use your retirement funds, borrowing against it or making an outright withdrawal can seriously reduce what you will have for retirement. The impact could even delay when you can actually stop working. Instead, he recommended using a lender that will finance student loans and tells parents that they should insist that their children contribute to paying back the loan.
