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Money Habits That Hurt Your Retirement Savings

Retirement is hard enough without adding extra complexities that stop you from reaching your full savings potential. It’s essential to understand what your needs are going to be in retirement and then to spend as many years as possible preparing for those needs. If you’re overspending now and not saving enough, it could be the difference between the retirement you dream of or struggling to get by in your later years.

Here are some of the most important money habits to pay attention to that might negatively impact your long-term retirement savings.

Not Living on a Budget

One of the biggest money mistakes you can make, no matter what you’re trying to accomplish, is spending too much money. This can mean spending more than you have available or simply not living on a budget so that you can easily live beneath your means. This can create a number of different results, most of which could be better for you. One of the consequences this often leads to is the inability to save for retirement.

If you’re not regularly contributing to your retirement, then it becomes very difficult for the account size to grow over time. The longer you wait to contribute, the less you’ll have when your golden years come. Not living on a budget can also cost you more money as you dip into credit cards or other accounts to buy things you can’t afford or to pay your bills. This delays saving for retirement and makes the things you buy cost more by paying interest.

Borrowing From Your Retirement Account

Your end goal for retirement savings is to maximize how much you can put away so that you can live without income for multiple decades in retirement as you live a long and healthy life. Many people end up in financial trouble long before they retire, and they borrow from their accounts, thinking they’ll have plenty of time to pay it back.

This not only causes you to lose out on account growth from the money you take, but it can also cost you penalties and fees if you’re unable to pay it back promptly. It depends on what type of account you’re borrowing from, but most retirement accounts must charge you an early withdrawal fee and tax your withdrawal at a large rate if you wait to pay it back quickly. You should not look at your retirement accounts as money you have that is readily available.

Not Maximizing Contributions

Another struggle for many people in trying to reach their retirement savings goals is simply not saving enough. It’s essential to maximize your retirement contributions for your retirement accounts if you’re able to. You can maximize your 401(k) contribution to the level that your employer will match, and you can also contribute up to $6,500 per year to an individual IRA account.

Not maximizing your contributions can cost you thousands of dollars in multiple ways. First, not meeting your employee match percentage costs you free money your employer gives you just for contributing. Second, the less you contribute to additional accounts means you have less money working for your retirement. If you have lofty retirement goals and want to live comfortably in those years, consider maximizing all contributions and doing it as early in your work life as possible.

Not Creating a Retirement Plan and Underestimating Costs

Another huge mistake people make is underestimating how much retirement will cost them. While this isn’t a money habit, per se, it is a mentality that shifts their savings habits. Retirement can be more expensive than you think, especially if you don’t plan on owning your home without a mortgage. Not only do you have to think about the money you’ll spend on regular activities and daily living, but you’ll also need to think about health care, which will likely be more expensive than you’re budgeting.

A strong money habit you can do now is to create a retirement plan and then revisit that plan annually to make sure you’re still on a path that gets you the full retirement savings you need. It’s important to consider things like inflation as you create a retirement savings goal. Then your retirement investments can match your plan to ensure you’ll have the money necessary to retire the way you want.

Bottom Line

Ultimately, most people who aren’t financially prepared for retirement typically end up hurting themselves as they progress down the path toward retirement. In many scenarios, they either save too late or don’t save enough. Others struggle to live by a budget, while many still don’t fully understand what they will need to retire comfortably. Without a proper plan and the discipline necessary to achieve that plan, reaching your long-term retirement goals is nearly impossible.