I’m Planning My Retirement: How I Wasted Thousands of Dollars
According to a recent CNBC and SurveyMonkey poll of 498 Americans, 53% of respondents said they’re behind on retirement planning and savings. Kenny P. is one such person. The 55-year-old TV producer recently started planning his retirement — and he feels behind.
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Here’s a rundown of where one soon-to-be retiree went wrong so you can avoid making the same mistakes when planning your retirement.
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Ignoring a 401(k) Match
“For years, I didn’t contribute enough to my 401(k) to get the full company match,” Kenny said. “My employer offered to match 50% of my contributions up to 6% of my salary, but I only put in 3%. That means I was leaving free money on the table every single year.
“If I had maxed out the match from the start, I could have had thousands more in my retirement account by now.”
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Paying High Fees on Investments
“I didn’t pay attention to the fees on my investment funds for a long time,” Kenny said. “Some of the funds I chose had fees as high as 1.5% per year. That might not sound like much, but over time, it really adds up. If I had switched to low-cost index funds earlier, I could have saved a ton in fees and had more money growing for my retirement.”
Cashing Out a 401(k) When Changing Jobs
When Kenny switched jobs in his 30s, he cashed out his 401(k) instead of rolling it over. He regrets that now.
“Not only did I have to pay taxes on that money, but I also got hit with a 10% early withdrawal penalty,” he said. “Plus, I missed out on years of potential growth on that money. It seemed like a good idea at the time to have some extra cash, but it was a huge setback for my retirement savings.”
Not Starting an IRA Early Enough
Kenny focused solely on his 401(k) for years and didn’t open an IRA until his 40s — something he said was a mistake.
“If I had started maxing out an IRA in my 20s or 30s, I could have had a lot more saved by now,” he said. “IRAs offer tax advantages and more investment options, so I missed out on both of those benefits for a long time.”
Trying To Time the Market
“There were times when I thought I could outsmart the market,” Kenny said. “I’d pull my money out when I thought stocks were going to drop, or try to buy into the ‘next big thing.’ More often than not, I ended up losing money or missing out on gains. If I had just stayed invested in a diversified portfolio, I’d likely have a lot more saved now.”
Not Having a Clear Retirement Goal
For a long time, Kenny just saved without a clear idea of how much he’d need in retirement.
“I wasn’t saving enough and wasn’t making the best investment choices for my goals,” he shared. “Once I sat down and calculated how much I’d actually need, I realized I was way behind. If I had done this earlier, I could have adjusted my savings rate. You live, you learn!”
Borrowing From a 401(k)
“When I needed money for a home repair — and I needed that more than once! — I borrowed from my 401(k) instead of finding another way to pay for it,” he said. “While I did pay it back, that money wasn’t in my account growing during that time. Plus, I paid interest on the loan — to myself, sure, but it was still money that could have been going toward my retirement instead.”
Not Considering Healthcare Costs
For a long time, Kenny didn’t factor in how much healthcare might cost in retirement.
“I just assumed Medicare would cover everything,” he said. “Now that I’ve looked into it, I realize I should have been saving extra for potential medical expenses. If I had started a health savings account (HSA) years ago, I could have had a nice tax-advantaged fund just for healthcare costs in retirement.”
Lifestyle Inflation
It’s a common story: As Kenny’s income grew over the years, so did his spending.
“Instead of saving more for retirement, I upgraded my car, took fancier vacations and generally spent more,” he said. “If I had kept my lifestyle more modest and put that extra money toward retirement, I’d be in a much better position now.”
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This article originally appeared on GOBankingRates.com: I’m Planning My Retirement: How I Wasted Thousands of Dollars