How To Avoid Bankrupting Your Retirement
Posted by Richard on May 4, 2022
If you want to enjoy retirement, avoid a few mistakes that can drain your wealth and render retirement impossible.
First, keep contributing to your retirement account. People tend to think retirement is decades away and a bit of lax planning now isn’t a big deal. But even if you have to make smaller contributions to your retirement, make them consistently. Time — and compound interest — is on your side in your youth, and the money you put in has time to grow. Even if you suddenly find yourself at age 40, you can still build a retirement fund with maxed out contributions, but the key lesson is to start early and be consistent, according to investor.gov.
Second, never take money out of your retirement account. Giving yourself a loan from your 401(k) or other retirement accounts could greatly constrain your wealth. Compound interest rates are powerful. Let’s say you have $50,000 in an investment account, earning 7 percent a year. In 25 years, that account will be worth approximately $270,000. If you took $15,000 from that account, perhaps to buy a car, you’d have just $190,000.
Finally, don’t bankroll the kids. Bankrolling kids proves the downfall for some, especially if you treat retirement as a far-off problem. Many parents go to great lengths to pay for college, and some strive to help with first homes and more. If you’re already financially set, help to your heart’s delight. Yet few are as secure as they believe.
Borrowing to pay for your child’s college is especially risky, even if interest rates are low. You may find yourself on the hook for hefty bills while your income drops. If you end up financially unstable in your golden years, you could quickly become a burden on your kids. So it’s important first to ensure your own financial security before helping others.