This is a guest post. If you are interested in guest posting, please feel free to contact me. I will accept guest posts from bloggers who want to share their stories about debt and finances and from brands that have products that coincide with my blog. Enjoy this post from Kacie at SenseToSave.com
Though everyone’s circumstances vary, generally there are a few things NOT to do when preparing for retirement:
5. Missing out on a company match — Some financial experts (Dave Ramsey comes to mind) suggest holding off on all retirement contributions until your debts are paid off. If you’re able to get out of debt extremely fast, maybe this is a good idea. But if it’s going to take awhile, consider putting enough toward your company’s retirement plan to get the full match if one exists. If this pinches your cash flow too much, consider gradually increasing your contributions as you pay off debt and increase your income. The company match is literally free money, but you have to contribute enough to get it.
Exception: If you’re struggling to pay your bills on time or put food on your table, there are more pressing things going on in your life right now.
4. Skipping a Roth IRA — Did you know that you can make withdrawals from a Roth IRA, tax-free and without penalty at any time? This refers to your contributions, not the earnings. In 2012, individuals can contribute $5,000 per year ($6k/year if you’re 50 or older). If you do make a withdrawal, you won’t be able to make catch-up contributions — so weigh the benefits of a withdrawal with your future investment’s earnings potential to decide what to do.
- Not everyone can contribute to a Roth. Single tax filers who earn less than $110k ($173k for married filing jointly) can contribute to a Roth. If you are single and earn more than $110k but less than $125k, you can still contribute a reduced amount to your Roth IRA. The phase-out for married couples is if you earn more than $173k but less than $183k.
- For more info on the IRA, read up on the tax code. It’s fun stuff.
3. Paying too many fees — Not all 401k or IRAs are created equal. Some of them have higher expense ratios. Over time, these fees can eat into your profits in a major way. Check on your fees in your retirement account. Are they greater than .75%-1%? If so, it might be time to move your investments to an investment or account with a lower fee.
2. Funding your child’s college over your own retirement — You’ve probably heard it said before, “Your child can take out a loan for college or work their way through, but the same can’t be said for retirement.” Taking care of your own retirement savings before saving for your child might be hard to consider, but it will help your child in the long run if it means you won’t be a financial burden to them when you’re older.
1. Not preparing for retirement at all — The worst possible thing you can do? Ignoring it. Waiting for “someday” in the future to deal with it. Waiting until you’re completely out of debt, or earning more money, or are older. Delaying retirement planning makes it harder for you down the road. Sure, saving for retirement can be an overwhelming prospect. Take it in small steps. If there’s absolutely no money available to save for retirement right now, put together an action plan for when you’ll be able to start investing, such as specifically how you will pay off your debts and increase your income. Do something.
Kacie is a 26-year-old wife and mother of two, and blogs at SenseToSave.com. On Wednesday, she’s starting a new retirement series on her blog. She’ll cover topics such as figuring out how you want to spend your retirement, how much to save, where and how to invest, and how to make the most of your savings.
I also blog at A Five Star Life. I write about anything that comes to mind but try to focus on finding the good in daily life.
Great tips. If you are going to avoid the match while paying down debt, keep kicking yourself the whole time…I get why people would NOT take advantage of matching funds, but I think it’s important to remind yourself that you have to hurry so you don’t flush free money down the drain.
AverageJoe recently posted..When Charts & Graphs Lie
on February 7, 2012 at 2:22 pm
Love that image! Good pick
Kacie recently posted..My guest post about 5 things not to do with retirement planning
Definitely the “Not to do’s”. I am very risk-averse when it comes to retirement savings, and opened my first IRA at 24.
Amanda L Grossman recently posted..A Frugal Date for Long Distance and Near Distance Couples
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I think number 2 is a solid tip. We have to be careful funding our kids’ schooling because if we do it at the expense of their retirement, then we have to move in with them.
John | Married (with Debt) recently posted..Combining Finances and Efforts
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