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Retirement Planning

Image by Aaron Burden

Planning for the future can be difficult. After all, it is hard to think about the many years ahead when there is so much going on now. However, if you do not plan for the future today, you could suffer during your retirement years due to inadequate preparation. With that in mind, read on to discover common mistakes when planning for the future. Benjamin Franklin, acknowledged the wisdom of looking ahead and thinking through areas of importance, such as financial provision for your children. He stated, “If You Fail to Plan, You Are Planning to Fail”

Common Mistakes When Planning for Retirement:

Waiting to Save


The best time to plan for the future is when you are in your twenties. The earlier you start saving, the more you will benefit from compound interest. Compound interest allows your money to make interest on the interest in your account! Even putting away small amounts every month early in your career will have a larger impact as retirement approaches. While it is never too late to start saving, those starting closer to retirement will need to put away significant amounts of money to match where you would be if you had started in your 20s.


According to Einstein,


“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn't … pays it.”

Not Getting A Professional Will

Not having a will is one of the biggest mistakes a person can make. Many don’t want to invest in professional will services because they deem it as an unnecessary expense; However, if you take this task on yourself and you make an error, it could invalidate your will. Your children will then have to go through the tiring (and often costly) process of probate. During probate, the courts decide who receives your assets and possessions. You can save your family tremendous hassle by allowing your will and estate plan constructed by a legal expert from the start. 

Failing to Budget

Regardless of your current financial situation, you need to have a well-constructed budget. This should involve a list of your incoming and your outgoing expenses each month, showing your updated balance. Don’t leave out any expenses, no matter how insignificant they may seem. From your monthly income, deduct a realistic amount for living expenses and this should allow you to see how much you can save each month. Without a budget, you run the risk of living beyond your means, wasting money, and having little (if anything) left for retirement.

Not Creating a Financial Roadmap

A significant mistake that people make when planning for the future is failing to create a road map for their retirement. To do this, you need to ask yourself some key questions. What type of lifestyle do you want to lead when you retire? Are you going to have any income streams once you finish working? What are your family commitments? Do you have plans to travel? Are you going to pursue a hobby, and if so, how much will this cost? Do you have a mortgage or rental payments to fund? This roadmap should include attainable small and large goals, projected timelines, retirement budgets, etc.

Early Accessing of Pensions & Retirement Accounts 

With any pension or retirement plan, the aim is always to leave the money untouched until you retire so that you can make sure you have enough funds for this time of your life. However, there is no denying that circumstances could arise that may require you to change your thought process. If you are currently thinking about taking money from your 401(k) before your retirement, below are some other things to consider:


Don’t…but if you must.

1) Penalties:

Typically, you will need to ensure that the funds are kept in the plan until you reach the age of 59-and-a-half-years-old. You can withdraw money before this, but you will be hit with a substantial penalty of 10 percent. This is on top of the regular income tax that is applied to all withdrawals. This means you will be sacrificing quite a large percentage of your nest egg in making the withdrawal.

It is worth noting that there are some exceptions. The 10% penalty will be waived by the IRS for certain ‘hardship’ withdrawals. Of course, this will differ from plan to plan, so you do need to check yours to be certain. This may waive the 10% penalty, but you will still be subject to income tax on the withdrawal. Nevertheless, you might be able to make a withdrawal before you reach the age mentioned above if you are using the money for one of the following purposes:

•    Payments you need to make to stop a foreclosure or eviction
•    Higher education expenses, such as paying to send your children to college
•    Costs after the onset of a sudden disability
•    Buying your first property

Withdrawing this money should be a last-ditch effort. You are saving for the sole purpose of retirement, and you want to have enough money to live on after you no longer have a steady income coming in. 

2) What about a 401(k) loan?

Another option is to take out a loan on your plan. A lot of the 401(k) plans available today give you the option to borrow against the amount that is in your account. If you go down this route, you need to repay the money to your account within a set period. This will typically be a few years. If you do not pay the loan back, it will be deemed a cash withdrawal from your plan. This means you will have the 10 percent penalty to pay, and you will owe taxes on the sum. So, make sure that you can manage the repayment schedule. 

It is also important to be aware of the drawbacks that are associated with taking out a loan. The most obvious is the fact that you will lower the sum of money that you have in your plan, which is currently growing for your retirement years. Not only this, if you decide to change jobs or you are laid off, you have to pay the outstanding loan, or it will become taxable and may even have a 10% penalty. You will also need to pay interest on the amount you borrow. 

Set Up A Complimentary Consultation Today

Do yourself a favor and utilize the guidance of an experienced financial advisor to help avoid mistakes and implement proactive planning services to help secure a comfortable retirement season for you and your family. Michael R. Rose is dedicated to helping individuals make wise financial decisions when it comes to retirement plan withdrawals. Make sure you discuss this with a financial planning professional in Albuquerque. With the right financial planning, you can have the freedom to pursue your financial goals! Get support by calling him today!

Michael R Rose and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.

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