By Ryan Velez
Youth comes with plenty of opportunities, but when it comes to saving for retirement, this is one you should jump on right away. “Too many people wait way too long to start thinking about how much they will need to finance their retirement,” says Chris Heerlein, partner at REAP Financial LLC and author of Money Won’t Buy Happiness – But Time to Find It.
Heerlein mentioned to Black Enterprise that “In a way, that’s not surprising. Retirement seems so far away when you’re in your 20s and 30s, and it’s easy to think you’ll have plenty of time to worry about saving later. Then before you know it you pass 50, and you realize you missed a great opportunity to take advantage of compound interest.” While there are many things you can do to set yourself up for retirement properly, Heerlein discusses 3 major mistakes that young people make when it comes to their retirement.
Not every employer offers a 401k, but if yours does, make absolutely sure that you participate. If you start when you are in your 20’s and contribute over the following decades faithfully, you may be shocked at what potential rewards you can reap. However, many people ignore this savings opportunity. “And if your employer is offering matching funds, that’s free money,” Heerlein says. “You need to jump on it.”
By the same token, don’t think your work is done if you contribute to a 401k. “If you are a younger saver, you are putting all your money into a bucket you can’t touch for 20 or 30 years,” Heerlein says. Not to mention, when you do withdraw, you have to pay taxes on your money. As a result, you want to put balance in your portfolio, like a Roth IRA, a Roth 401(k) or a health savings account. Withdrawing from these won’t result in taxes because they are already paid.
In some cases, financial mistakes have some logical basis. For example, many young people today remember the 2008 financial crisis and how many investors lost a substantial part of their savings. As a result, Heerlein says that many people under 50 are too conservative, hampering their money from growing as much as it could. “I’m not faulting people for that, but what I want to get across is if you are between the ages of 20 and 50, there is no need to panic,” Heerlein says. “Time is on your side. If you suffer a loss, you more than likely have plenty of years to recover before you retire.”