Saving for retirement is one of the most important things you can do for your future. The risks of not doing so are obvious: Without retirement savings, you might have to continue to work until your death or else rely upon the assistance of family members to cover your expenses. But failing to save isn’t the only thing that could cause your retirement plans to go awry.
Sometimes, things we do with the best of intentions actually come back to bite us later. Below, we’ll look at one of these bad habits that you probably want to stop doing immediately.
Investing is all about the long term
Investing can certainly help you grow your wealth more quickly than a savings account, for example, but it’s not a get-rich-quick strategy. In fact, it’s usually not a good idea to invest any money you plan to spend within the next five to seven years because the stock market can be volatile. If you have to withdraw your money within a few years of investing it, there’s a chance you may have to sell it at a loss.
But over the long term, the stock market has historically done quite well, and it’s possible to earn quite a bit this way, especially if you leave your money invested for a few decades. This is often the case with most people’s retirement savings. And since you probably won’t touch that money for decades, the day-to-day fluctuations of your investment portfolio don’t matter as much.
Yet about 53% of women and 34% of men report checking their retirement account at least three times per week, according to a recent Nationwide survey. That might seem like an innocuous thing, but it can tempt some investors to make decisions based on short-term performance.
For example, if you see that your retirement account is down, you might decide to sell some of your investments or even pull money out of the account altogether. But this could lead to fees and penalties. Plus, it could deprive you of the return you would have gotten if you’d just stuck it out with your current investments until the stock market recovered.
Not everyone will react this way, but if you think that checking your portfolio every few days will lead you to make decisions based on recent performance, you probably want to step back. Instead of looking at your portfolio daily or even weekly, consider checking it just a few times per year. That might not seem like much, but again, if you are a long way from retirement, the daily ups and downs probably won’t even matter to you in the scheme of things.
As long as you’ve diversified your money and invested in companies that you believe have a bright future ahead of them, often the best thing you can do is to leave your money where it is and trust that over the long term, things will go your way.
What if I’m worried about not having enough money in retirement?
Fears about retirement income can drive people to pay close attention to their retirement account balance, but that’s not the only way to deal with this anxiety. Obviously, if you can increase your annual retirement contributions, doing so is a good idea. A larger nest egg will help you cover more of your expenses in retirement and will reduce the risk of you running out of savings prematurely.
But if you can’t increase your savings, you may have to take steps to reduce your retirement expenses. This could include skipping discretionary purchases, downsizing your home, or moving to a more affordable area.
You could also consider delaying retirement. This gives the savings you have more time to grow and it also shortens the length of your retirement, thereby reducing its cost. If you don’t like the idea of spending more time at your 9-to-5, you could consider switching to part-time employment or finding a job that’s more in line with your interests as you get older.
Don’t stop setting aside money on your own, though, even if you plan to work for the foreseeable future. Even if you never retire fully, the extra money you’re saving now can turn into a valuable emergency fund as you age.
You can’t control what the stock market does, so it’s best to focus your efforts on what you can control. If you haven’t already done so, develop a plan for how you’ll fund your retirement and consider coming up with a few backup plans in case you aren’t able to save as much as you’d like. Then, review these plans and your retirement balance once or twice per year to make sure you’re still on track.
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