September 22, 2023

This is the biggest mistake when planning your retirement

From bad investments to wrong savings accounts, Americans can make several missteps when planning for retirement.

But so many fall victim to one mistake in particular, according to one expert.

“Every client I have wishes they started sooner,” Katharine George, a financial advisor at Wealthstream Advisors, said during an appearance on Yahoo Finance Live (video above). “Compounding — so that means starting very early and growing your money, that’s the most powerful tool.”

This is why starting early matters. According to the government’s compound interest calculator, with an initial investment of $20 and a monthly contribution of $40, investors could earn more than $38,000 over 30 years, assuming a 6% return with a 3% variance.

“Wishing they had started saving sooner and more often is a regret many investors deal with,” said Randy Bruns, founder of financial planning firm Model Wealth. [number of] years for compounding – is also when you have the least financial capital.

Close-up view: pile of coins and hands.  A concept/idea of ​​time value of money.  Money right now is worth more than the same amount in the future because of its potential earning potential.

(Photo: Getty Creative)

When it comes to calculating the ideal “retirement number,” George said it can get complicated. She explained that the right number can depend heavily on factors such as an individual’s risk profile, their mix of stocks and bonds, and cost of living. She noted that healthcare costs are growing faster than other living expenses.

“There are all kinds of rules of thumb. And I don’t like any of them. It’s really hard because everyone’s personal situation is very different,” she said.

George said Americans should not only make sure to plan early, but advise them to check in with a professional 5-10 years before retirement. She explained that a financial planner might tell them to save more than they think, if they still have time to adjust accordingly.

Read more: Money Market Account vs CD: Which is Best for Savings?

“So really working with a professional who has the knowledge of how to grow your wealth, how to think about inflation and how you’re going to supplement your lifestyle, even from a tax point of view. You know, money in a retirement account is very different from money in a taxable account of taxes,” she said.

Investors who wait too long to prepare for retirement risk being forced to work when they are too old, says Jordan Benold of Benold Financial Planning.

“Work on some level is not only mental but physical in nature. There comes a time when your body can no longer do what it used to do, and it is vital to have a nest egg to fall back on for income,” he said. “Time is the best asset an investor can have. It’s almost the only guaranteed way to have the right retirement amount you need.”

Waiting too long to plan for retirement could mean enduring a massive lifestyle degradation.

“It’s people who are retiring or already retired who have really tough decisions to make, like downsizing their home or cutting expenses that they may wish they had started a little earlier,” George said. “So really think about having a plan before you get to that retirement age.”

If you’re starting late and still falling behind, it’s time to correct course and sacrifice a little more of your take-home pay for the future, said Peter T. Palion, an East Norwich NY financial advisor

“If you start at, say, 30 or 35… you’d probably want to shoot for a little bit higher contribution level to make up for lost time, so that at the end of the day, when you get to retirement age, you won’t have much less money than if you started sooner,” said Palion.

In more dire circumstances, older Americans who don’t have enough savings may turn to reverse mortgages or a home equity conversion mortgage as a possible “lifeboat,” said Gibson Wealth Management’s Brandon Gibson.

“There’s a certain amount of retirement planning that can be done in just about any situation,” he said.

But ultimately, nothing beats planning ahead, according to Brandon R. Opre of Trust Tree Financial.

“The plan will evolve over time and no doubt change, but you have to have goals and something to work towards,” Opre said. “The sooner people create this vision, the better off they’ll be and the more confident they’ll feel knowing they’ve taken steps to save a nest egg that should sustain them in retirement.”

Dylan Croll is a Yahoo Finance reporter.

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