3 Pitfalls To Avoid When Retirement Planning
18.05.12
It is never too early to start thinking about how you might prepare for your retirement years. Unfortunately, many people don’t really sit down and go through any sort of analysis until they’re in their 50s or even later. For those who would like to plan ahead, there are multiple ways to help set yourself up for a secure retirement later. There are also traps that many fall into: Here are three of them to avoid.
Don’t begin saving too late: Too many people think they can always save later for retirement. They think that they can spend freely today and then later on when they make more money they will be able to save more. But saving money becomes a habit, and unfortunately not saving money (and spending too much), also becomes a habit as well. It is best to develop a culture of saving and living below one’s means early on in life. In addition to developing this beneficial habit, you will reap the rewards of compounded returns over time. Let’s look at a 25-year old who thinks he might retire when he’s 65. I looked at how saving more today will impact his final portfolio by using our publicly available calculator called Savings From Spending Less . I assumed a real rate of return of 3% per year, a federal tax rate of 25%, and a state tax rate of 5% on all investment gains. I came up with the results below:
Source: Seeking Alpha