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5 mistakes to avoid when saving for retirement

These common obstacles can derail your retirement savings.

Saving for retirement isn’t an exact science. You make your best guess as to how much money you think you’ll need once you stop working and then save and invest to try to reach that goal — whatever it may be. A recent study shows that two-fifths of Americans say they’ll need at least $1 million to retire comfortably.

But you can put yourself in the best position to reach your retirement savings goals by knowing what to do and what not to do as you sock away money. Here are five mistakes to avoid when saving for retirement.

1. Waiting too long to start saving

Compounding plays a big part in determining how much your retirement savings can grow over time, and it’s one of the main reasons why it’s essential to start saving early. In basic terms, compounding is the process of earning interest on your interest, and it creates exponential growth.

For instance, dividend payments are calculated by multiplying the number of shares you own by the amount of the dividend paid. If you reinvest dividends and your share count grows, each successive dividend payment grows larger over time.

But compounding isn’t the only reason why you should start investing early. Missing the market’s best days can drastically reduce your portfolio’s returns, and there’s no telling when the market will rally. According to Hartford Funds, missing just the 10 best days in the market over the past 30 years would have cut your returns in half. The investment management company examined the hypothetical growth of $10,000 invested in the S&P 500 between 1993 and 2022 and found that missing the 10 best days in the market would have resulted in 54%, or $85,850, less than someone fully invested during that period.

It’s never too early to start investing, but waiting too long can put you in a tough spot to reach your retirement goals on time.

2. Not saving via tax-advantaged retirement accounts

Taxable brokerage accounts have their advantages — no contribution limits, no withdrawal limitations and no required minimum distributions, to name a few. But retirement savers who don’t use tax-advantaged investment accounts, like the 401(k) and the individual retirement account (IRA), are missing out on several valuable benefits.

For starters, 401(k)s that offer employer matching contributions give you free money to participate. If you’re unhappy about your 401(k)s mutual fund-heavy investment options, at least save enough to get the full match. Again, it’s free money.

The traditional versions of the 401(k) and IRA also let you reduce your taxable income for the year in which you make the contribution, giving you upfront tax benefits as you kick your tax payments down the road. Meanwhile, the Roth versions of these accounts let you save with post-tax money, so you can withdraw your funds in retirement tax-free. Whether you go the traditional or Roth route, the best IRAs in 2024 offer the lowest fees, most investment options and tools and educational resources to help you learn and grow as an investor.

3. Not building an emergency fund

Experts recommend saving three to six months’ worth of essential living expenses in case you lose your job or primary source of income so you don’t have to resort to credit cards, high-interest loans or tapping into your retirement savings to stay afloat.

According to Finder’s Consumer Confidence Index, only 17% of Americans say they could live off their savings for a week if they lost their job tomorrow, while 22% say they couldn’t manage their budget or finances without a credit card. Meanwhile, in 2022, Fidelity saw more Americans tapping into their 401(k) savings than ever before because of financial hardships.

Pulling from your retirement funds early can lead to taxes, penalties and losing out on years of potential compound growth, and it could be enough to derail your retirement goals.

4. Letting high-interest debt erode your wealth

If you have a credit card or loan with a double-digit interest rate, you’re likely paying more in interest than you are earning on your investments, which means you’re losing money. The stock market’s historical annual return is about six or seven percent when you account for inflation. Meanwhile, the average credit card interest rate is at a record 20.69%.

For this reason, experts generally recommend you eliminate any high-interest debt before focusing on your retirement savings — an exception being saving in your 401(k) if it comes with a company match. Save enough in your 401(k) to get the matching contributions, create an emergency fund and pay off your high-interest debt. Then, focus on building your retirement savings.

5. Saving too aggressively that you can’t enjoy life today

Saving for retirement gives you more flexibility and control over your life down the road, but you don’t want to save so much that you can’t enjoy life during your working years, or worse, take on unnecessary financial stress. You shouldn’t take on debt, struggle to cover basic living expenses or miss out on meaningful opportunities because you’re saving every penny for retirement.

Saving for retirement is a balancing act that takes proper planning. But you need to enjoy some of the money you’re earning.

About the Author

Matt Miczulski is an investments editor at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions.

Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University.

This article originally appeared on and was syndicated by

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