It’s never too early to start preparing for your financial future. Here’s why you should start now and some common mistakes to avoid along the way.

Retirement planning isn’t a priority for many individuals until they get closer to winding down their careers. It might not be until they reach 60 that they start taking a closer look at their retirement because they can now access their retirement accounts without penalty and they will soon be eligible for Social Security, Medicare and, possibly, a pension.

It is around this time people can see some of the building blocks coming together and begin to realize they might not have as much time as they thought they had. They look back to all the time they had and wonder why they didn’t do anything sooner. Let their mistakes be your lesson. The time to start planning is now, and you can start by watching out for some common mistakes people make before they approach retirement.

  1. Not having a plan. You may think you have all the time in the world and can worry about it once you aren’t as busy, or once the house is paid off, or once the kids are out the door. As Ben Franklin noted, “If you fail to plan, you plan to fail.” By ignoring your finances and not paying attention to your retirement plan, you will most likely not be confident going into retirement because you haven’t set yourself up for a successful outcome. You actually have a financial plan whether you realize it or not – so why not take the time to make it a good one? Consider reaching out to a financial planner and start taking a holistic approach to your retirement plan. Create values-based goals for your retirement, set up an action plan for now and the future, and have someone hold you accountable.
  2. Not saving for the future right now, especially if you are young. Having time for your money to accumulate is one of the best ways to build wealth. Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t, pays it.” Start by setting up an automatic transfer to a retirement account or a savings account. Stay consistent and systematically increase the amount you save. You could increase the amount once a quarter by 1%, or you could increase it with every annual salary bump. A common strategy is to allocate 20% of your income to future goals or, in other words, a savings or retirement account. How close are you right now to setting aside 20%?
  3. Not factoring in taxes. “Taxes” is a word nobody likes to hear, and it represents a third common mistake people make as they plan for retirement. Instead of understanding the impact taxes have on their current and future income, some people just ignore it – and this could have a huge effect on your quality of life in retirement. It is important to look at your current tax bracket versus your anticipated future tax bracket. If you feel it will be higher in the future, it might make sense to contribute to a Roth IRA now when you are in a lower tax bracket, because the account will grow tax-free. If you would like income flexibility in retirement, it might be important to have differently-taxed accounts to pull from. For example, if you anticipate a large lump-sum distribution from an account in retirement, you would want the option to pull from a tax-free Roth account or a taxable brokerage account, versus a tax-deferred 401(k) plan. The 401(k) plan would be considered ordinary income and could put you into an unanticipated higher tax bracket. Why pay more taxes if you don’t have to?
  4. Not timing your job changes thoughtfully. When deciding whether to quit your job, it’s common to consider immediate benefits, like higher pay or a better work environment. But you should also consider any benefits you might be forfeiting. For example, by choosing to leave in January instead of March, you could miss out on your company’s annual 401(k) match. Another example could involve an employee losing stock options as part of their compensation package because they decide to leave right before they vest. In this situation, they could be forfeiting thousands of dollars without even realizing it! If you plan to leave your company, be sure to review your benefits to determine if now is the right time to say goodbye.
  5. Not planning for healthcare costs. When planning for retirement, health care can be one of the largest unknown variables. It is also scary to think about. However, a good retirement plan should cover reasonable future healthcare costs. The plan should consider items like expenses not covered by Medicare, long-term care costs in assisted living, as well as any disability that could disrupt your strategy for saving for retirement. If you have access to a health savings account (HSA), consider fully funding it each year. If you use the money for healthcare costs, there is no tax on the amount withdrawn. If you don’t need it for healthcare and are over the age of 65, you are able to take distributions from it without penalty as long as you pay any associated income taxes. Also, make sure you have appropriate disability insurance to cover you and your family should anything happen to you during your prime working years. If you aren’t able to work, you will have a hard time covering your fixed costs, much less saving for your future retirement.

As you can see, some small simple moves can have a significant impact on your future retirement lifestyle. It is never too early to start planning to get to your ideal future. Start small and consider working with a trusted advisor to uncover your values-based goals. It is these goals that bring a smile to your face when you think about them. It could be taking grandkids on an annual vacation to Florida, or maybe having a second home up north. It could also be the ability to pivot to a new career you have always wanted to explore because you no longer NEED to work.

Once you have those values-based goals in writing, put the numbers behind the goals. How much would it really take for you to purchase that second home? How much do you want to spend in retirement to maintain the lifestyle you currently have? It doesn’t have to be exact, but you do want to have a realistic number you can work toward. This number will make it easier to determine how much you need to save each month, what type of accounts to use, and how long you need to save.

At the end of the day, a good financial plan is just a math equation. The hard parts are coming up with the goals and the vision for your financial future, allowing yourself to dream and think outside the box, asking for help from a trusted partner, and taking consistent action toward your long-term goals.

Are you ready to take charge of your financial future? Take the first steps to success. Create your plan. Start saving consistently toward your goals. Understand how taxes can affect your plan. Don’t quit your day job without understanding your benefits. Plan for the worst and hope for the best when it comes to healthcare in retirement. And most of all, stay flexible and don’t be afraid to ask for help.

Author Anne M. Mank Director of Financial Planning

Anne co-hosted the weekly radio show, Money Sense, and is a Certified Integrative Holistic Coach.

About Savant Wealth Management

Savant Wealth Management is a leading independent, nationally recognized, fee-only firm serving clients for over 30 years. As a trusted advisor, Savant Wealth Management offers investment management, financial planning, retirement plan and family office services to financially established individuals and institutions. Savant also offers corporate accounting, tax preparation, payroll and consulting through its affiliate, Savant Tax & Consulting.

©2024 Savant Capital, LLC dba Savant Wealth Management. All rights reserved.

Savant Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments and/or investment strategies recommended and/or undertaken by Savant, or any non-investment related services, will be profitable, equal any historical performance levels, be suitable for your portfolio or individual situation, or prove successful. Please see our Important Disclosures.