by Emily Hechler 
As a 20-something, I’m beginning to think about my retirement savings. Many of my friends are approaching their 30th birthday and are quickly realizing some investing mistakes about their retirement. As you start saving for your retirement, be mindful of these common mistakes. If you’ve already made some mistakes (like me), we have tips to get back on track.
Not Saving Enough
A common retirement saving mistake is not saving enough money early on. By starting to save a percentage of your income earlier, you can keep the percentage lower than if you start later in your career due to the power of compounding interest. In other words, your money earns money, and then those earnings can earn money too.
Some employers don’t have a retirement plan for their employees. While this puts more work on you, you can still save with an IRA at Alltru. We offer traditional and Roth IRAs so you can start saving on your terms.
Fixing Your Saving Mistake
A good rule is to contribute 15% of your pre-tax income to your retirement savings. The earlier you start saving, the more your money will grow thanks to compound interest. Create a budget that allows you to save 15% of your income for your retirement savings. That way, you still have 85% of your income to live off of now.
Letting Your Money Sit in Between
This is a mistake I made when I was transitioning jobs. I transferred the money from my previous employer’s retirement plan to a Roth IRA. I assumed my money was safe and growing while I waited to become eligible for my new employer’s plan. However, I failed to realize that I actually needed to choose an investment within the IRA. Fortunately, I caught my mistake after only a few months, so I have plenty of time to keep growing the money in the account.
Fixing the Sitting Money
I failed to realize that the money in my Roth IRA was sitting in the account doing nothing. It wasn’t invested in any funds or other investments. In many retirement accounts, money may remain in a cash settlement account until you choose investments. If you are confused about how to set this up, talk with your financial advisor or brokerage service to make sure your money has the opportunity to work for you.
Not Getting Your Employer’s Full Match
Many employers offer a match with their 401(k) retirement plans. This means that they’ll put money into your retirement plan as long as you do too! It’s like free money for your future! Some people simply don’t know that their employers offer a plan like this, so they’re leaving potential retirement savings on the table.
When your employer contributes to your plan, their contributions aren’t vested until a certain point in your employment. This means that if you leave the company for a new job before you are vested, they can and will remove their contribution to your retirement plan.
Fixing an Employer’s Full Match
Contact the human resources team at your job and ask about your company’s match program. If they match your percentage up to 5%, then contribute at least 5% of your income so you’re getting the most money that you can from your employer.
My husband was recently job hunting. After interviews and job offers with similar pay came in, we realized that he wasn’t fully vested yet. By staying with his employer for another 6 months, he would be able to leave and take all of his employer’s retirement contributions with him.
Keeping Too Much in Other Accounts
Our country’s retirement system is ideal because it gives our money the opportunity to immediately grow over the years, as long as we invest it in the right accounts. Only around 46% of Americans have retirement savings accounts. That means the other 54% of Americans are either saving in traditional bank accounts and calling it their retirement fund or aren’t saving for retirement at all! While high yield savings accounts and CDs can play an important role in a financial plan, they are generally better suited for short- to medium-term savings goals rather than a long-term retirement savings plan.
Fixing Money in Other Accounts
It’s not too late to move money into your retirement account. If you are just now setting up an account with your employer, contribute more than the match amount, and maybe even more than 15% of your income, to boost your initial investment. The IRS also allows you to contribute to your retirement accounts in the current year before Tax Day and count it toward the previous year. This gives you a leg-up as a taxpayer!
Cashing Out Early
Withdrawing money from your retirement account before age 59½ is called a “premature” or “early” distribution. If you withdraw money before this age, you’ll have to pay an additional 10% early withdrawal penalty. This heavy penalty offsets your savings and encourages you to keep your money in your retirement account.
Fixing Cashing Out Early
There are a few exceptions to this rule that allow you to pull out money from your retirement plan without paying the 10% tax. Some examples include using the funds for birth or adoption expenses, permanent disability, education expenses, first-time home buying, and more. Visit the IRS website for the full list of exceptions. If your situation doesn’t qualify, do your best to keep all your retirement savings in the account.
Invest Smart This Year
While this is a complicated list, these items are included because these are real mistakes that people like us make without realizing the consequences. Knowledge is power. If you are in a situation where you think you need to budget for retirement differently or are tempted to withdraw money from your retirement savings, let us know. A certified financial counselor can help you through your situation to empower your next right money move.
