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It’s a topic that many of us like to avoid talking about because, quite frankly, we feel unprepared.
Expectations of retirement have changed.
For many Americans who were young in the `60s, `70s, and early `80s, retirement was thought of as a permanent vacation on a sandy beach with steady cash flow coming in from pension payments and supplemented by Social Security benefits.
In 1983, 56% of American workers could expect an employer-provided pension to fall back on during the golden years, according to the Social Security Administration.
Now, the retirement landscape is a little less idealistic.
Only a quarter of Americans expect to receive a pension in retirement, according to the Bureau of Labor and Statistics. Without pensions, we have to turn to other retirement savings plans.
Many employers now offer 401(k)s instead of pension plans. Unlike pension plans, 401(k) plans put the responsibility of choosing investments and managing retirement savings on our shoulders.
There are plenty of 401(k) investment mistakes you can make that can cost you dearly if you’re unaware of how 401(k) savings accounts and investing works.
In fact, I made a huge retirement planning mistake with my 401(k) that I want you to avoid.
The Consequences of Withdrawing from My 401(K) Prematurely
When I got laid off in 2009, I decided to use my 401(k) savings when I ran out of money.
I didn’t have a solid understanding of the implications of withdrawing early from my 401(k) before dipping into the cash. Had I known how expensive it was to take money out of the account before retirement, I probably would have explored other options to get cash first.
Here’s why withdrawing money from your 401(k) early can be bad:
If you take money out before retirement age, the money can be taxed as income, and you may be subject to a 10% early withdrawal penalty.
In my case, I had to pay taxes and the high penalty cost — a double whammy.
Plus, withdrawing money early brought my retirement savings momentum to a screeching halt.
It took five years for me to start thinking about retirement once again after depleting my retirement account. I now have to make up for lost time.
Using money from your 401(k) during a financial emergency should only be considered as a very last resort because you can lose a good portion of the money you saved to taxes and penalties.
Prematurely withdrawing funds from your 401(k) is just one mistake you need to avoid.
Our friends at Consumer Reports share five other 401(k) mistakes you need to be aware of here. Be sure to check out this article to learn how to make the most of your 401(k) savings.
Motivation If You Feel Discouraged
It’s never too late to put a plan in motion that will help you attain the lifestyle you want in retirement.
Believe me; you have time to accept the new realities of retirement without pension and to create a secure future for yourself. I’m an example of someone who’s been able to jump back on the retirement savings bandwagon.
The first step to taking control of your future in retirement is knowing where you stand.
Consumer Reports has you covered for this step.
On Consumer Reports’ website, there’s a table that tells you how much you can target to save based on your age and income here.
The next step is being knowledgeable about how to approach saving. You can take Consumer Reports’ Retirement Planning Quiz to test your retirement knowledge. I took the quiz and here are my results!
Woot woot! *insert Kendrick Lamar voice*, “I’m gonna be alright!
You can take the quiz here. What was your score? Share below.
Lastly, the Consumer Reports’ Retirement Planning guide is full of information on how to approach retirement planning, saving, investing, and more. You don’t want to miss it. Check out the guide here.
Consumer Reports Role in Helping Us Plan for Retirement
Consumer Reports offers a wealth of information to assist consumers in retirement decision making. Consumer Reports’ mission is to empower consumers, like me and you, to make informed choices every day. Consumer Reports is also a nonprofit, independent organization that relies on public support to continue its work.
If you support CR today (until December 31, 2016), your tax-deductible contribution will be matched, dollar for dollar, up to $30,000 by two generous donors.
Your contribution allows Consumer Reports to continue providing consumers with information to make the best buying decisions, protect our health and safety, and hold businesses and government accountable.
You can donate to Consumer Reports here.
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