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Whether retirement is right around the corner or decades away, it’s good to be prepared.

As you look ahead, look out for these all-too-common retirement planning pitfalls:

1. Not Making a Plan

Your retirement years are too important to leave to chance.

Crafting an effective retirement strategy is no small feat, but when you’re a member of American Heritage Credit Union, you don’t have to go it alone. The qualified Financial Advisors at our Investment & Retirement Center (IRC) are ready to help you plan and save for the future you want and deserve. They can help you find answers to questions like:

• How can I ensure I don’t run out of money?
• What kind of insurance protection do I need?
• How should I diversify my investment portfolio?
• How will I know my family will be provided for?
  

Start the conversation by scheduling a complimentary consultation today.

2. Waiting to Get Started

They say the best time to start saving for retirement is 10 years ago and the next best time is now.

It’s not just about having more time to make contributions. It’s also about the power of compound interest. Here’s a simplified example:

• Jane starts saving for retirement at age 30, setting aside 15% of her income (starting at $50,000 with 2% annual raises). Assuming a 6% annual rate of return, she’ll have over $1 million saved by the time she’s 65.
  
  
• June has the same earnings outlook as Jane, but she doesn’t start saving for retirement until age 40. At 65, she’ll have less than $500,000 saved. In other words, she’ll save for 70% of the time, but she’ll only accumulate 50% of the money.
  

However, you can still turn a later start into a lucrative strategy. An experienced advisor can help you make up for lost time so you can enjoy a financially secure retirement.

3. Reducing Your Savings Over Time

Compound interest gives early contributions an extra punch, but that doesn’t mean you should ease up as you approach retirement.

Most retirement projections assume that you’ll maintain a steady savings rate throughout your working years, and deviating from this path can derail your plans. Keep in mind that many people don’t reach their peak income until their 50s, so later contributions can outweigh earlier ones that have had more time to grow.

4. Miscalculating Social Security

Social Security benefits can be a vital part of retirement income – but don’t over-rely on them.

As of 2024, the average Social Security check is around $1,800, which works out to less than $23,000 per year, or the equivalent of working full-time at $11/hour. Payment amounts also vary widely based on your earnings record and when you start claiming benefits.

You can use the Social Security Quick Calculator to estimate your future payments and get a better sense of how much extra income you’ll need to live the lifestyle you envision.

5. Not Leveraging Incentives

If you’re not taking full advantage of tax benefits and workplace perks, you’re leaving cash on the table.

Savings tools like individual retirement accounts (IRAs), health savings accounts (HSAs), and 401(k) plans provide tax-deferred or tax-free growth. Low- and moderate-income savers may be eligible for additional tax credits, and individuals 50 and up can make “catch-up” contributions beyond the usual annual limits.

With federally insured Traditional and Roth IRA Certificates from American Heritage, you can choose the term length and tax advantages that best fit your goals, then enjoy a guaranteed rate of return with no risk of market loss.

If your employer offers a 401(k) match, that’s essentially free money. For example, a 5% match means that your employer will contribute up to 5% of your salary if you save the equivalent amount, so you can effortlessly turn 5% into 10%, or 10% into 15%.

6. Failing to Plan for Taxes and Inflation

As you consider income inflows during retirement, you also need to consider hidden expenses.

Many people assume they’ll pay less income tax once they stop working and start living off Social Security and retirement account distributions. While Social Security is only partially taxable, and some distributions are tax-free, many retirees still face hefty tax bills. An advisor can help you forecast and minimize your tax exposure.

Inflation is another factor that can complicate retirement planning. If you’re 35 and comfortably live on $75,000 per year, don’t assume you can do that in retirement. If the Consumer Price Index (CPI) keeps up for the next 30 years the way it has for the last 30, you’ll need an income of $160,000 to enjoy the same buying power.

7. Borrowing From Retirement Savings

Pre-retirees often face major expenses like home repairs or college tuition. But in most cases, it’s a mistake to tap into your retirement savings.

When you take money out of savings, you lose out on compound growth. Additionally, early withdrawals from tax-advantaged accounts can incur substantial penalties on top of income taxes owed.

Specialized borrowing solutions like Home Equity Lines of Credit (HELOCs) and Student Loans are often a better choice for accessing the cash you need.

8. Forgetting to Check In

Retirement planning isn’t a one-and-done task. It’s essential to revisit your needs, goals, and strategies on a regular basis.

If it’s been a while since you crafted your retirement plan, set up a consultation with your financial advisor to ensure that you’re still on the right path.