Retirement planning mistakes can be irreversible because of lack of time – one retires when the best years have gone. retirement plans can be intimating and daunting. It is the easiest thing to make mistakes.
One of the big mistakes is to blow up the retirement savings ahead of schedule. Generally this happens when one is changing over from one job to another. One has to decide whether to roll over the 401(K) to an IRA or take the cash out. Cash in hand is tempting and one might splurge on a big television set.
Some calculating will be of help. A 401(K) of $5,000 that is started when one is 25 years old will swell to $75,000 on the assumption that it will be earning 7% for the forthcoming four decades. So just by taking out that $5,000 on a flimsy pretext could cause great damage. The government will snip off half of the withdrawal as tax and on top of this the person will have to pay a withdrawal penalty of 10%.
According to a recent survey of Hewitt Associated 60% of those in their twenties are prone to succumb to this temptation. Tom Kmak of Fiduciary Benchmarks advised that in the long run “it’s not the $10,000 you save at age 55 that matters, it’s the $2,000 you save at age 25 that does.”
Many firms are reinstating their plans matching 401(K). The investors will be happy with this news but there are many savers who do not subscribe sufficiently to benefit from that free money. The match from the company can stretch from 50 cents to $1 dollar on each dollar the person contribute. There is a maximum stipulated that is in proportion to the salary. The contributions mist would otherwise have added up fast to net gains. It calculates to surrendering 3% of one’s pay per year. For a person earning $50,000 per year it means $1,500 vanishes into thin air.
Unfortunately very few Americans have calculated these magic numbers as per a study conducted by Employee Benefit Research institute.
The first and best thing to do is to set a retirement age. Then one can calculate how much should be stashed away to reach that goal. But the right retirement age has to be chosen otherwise there are pitfalls. If one retires only five years prior to the mature retirement age of 67 then the 401(K) will be knocked off early and the Social Security benefits would go down by 30%.
Julie Thompson, has been working on ForeclosureDataOnline.com studying the foreclosures market, helping buyers on the finer points of Jonesboro foreclosed homes for sale.