(Guest post by Toi W.)
When planning for retirement, it is important to avoid the costly mistakes that could disrupt your retirement in the future. Saving for retirement is an important part of your financial future, but the payoff for all of the hard work involved takes so long that many people put other priorities first. It will take oversight and a large amount of common sense to get saving for your retirement right. Here are some of the most expensive mistakes that can be made when retirement planning.
Opting Out Of An Employer Sponsored Plan
Option out of a retirement plan sponsored by your employer can be one of the most expensive mistakes you can make when retirement planning. The employer’s matching contributions to the plan is calculated as part of your total benefits/salary package so not participating in the plan to the full extent possible is like giving your employer back part of your salary. Opt into the program and review all of the options available to you so that you can make an informed decision about the investment decisions that will impact the amount that you have available for retirement.
Borrowing Money From Your Retirement Account
Another common mistake made is borrowing money from your retirement account. The amount in your retirement account is constantly earning interest and the compounding interest makes the account grow faster. If money is removed from the account, that money is no longer earning interest and there is no way to get back the interest you would have earned if the money had been left alone. If you find that you are unable to pay back the money that was borrowed, you could find yourself facing penalties and tax charges on the money obtained from the account. If you need additional money, there are much less expensive ways to obtain it than borrowing from your retirement account.
Changing Jobs And Cashing Out
Cashing out your retirement account when you change jobs is another big mistake that many people make. By cashing out your retirement account, you are destroying the ability for that money to earn interest for you and you will probably be hit with penalties and taxes on the amount cashed out. While you may feel that you need the money if you were fired or laid off, chances are that you could survive without withdrawing the money from the account. The best course of action is to leave the account open or roll the funds over into the sponsored account of your new employer.