THE START LINE
Sign up for your employer’s retirement plan
The first step in your journey is signing up for a 401(k) or equivalent, if your employer offers one. Many employers’ match your contributions. If your employer doesn’t offer a retirement plan, look at your options and see if an IRA is right for you.
THE FIRST HILL
Forgetting to roll over a previous 401(k)
When you leave your funds behind at your previous job, they sit there waiting, unattended. Roll those dollars into a new plan with your new employer or into an IRA that will help you keep your funds working for you.
THE WATER STATION
Start an emergency savings account
Try saving a few hundred dollars a month to help build a financial cushion in case you lose your job or for unforeseen medical expenses. Having three months’ worth of expenses is a good benchmark.
THE SHARP TURN
Taking a loan from your retirement funds
Sometimes your only option is to borrow from your 401(k). While any interest you pay on the loan goes back to your retirement savings, failing to make payments or leaving your job prior to paying off the loan could result in being penalized. These loans offer little or no flexibility in changing payment terms and often offer a max of five years to pay back what you borrowed!
THE ENERGY SNACK
Purchase an investment property
A rental property can become a great source of retirement income. First-time landlords should focus on a single-family home or apartment to see if it’s a good fit. You can also make extra cash if you’re able to do small repairs and maintenance to the property yourself.
Penalty for a 401(k) withdrawal
Withdrawing money from your 401(k) before the age of 59 and a half without a plan to return it will result in a penalty. The penalty is of 10% of the amount withdrawn as well as paying regular income tax on that amount.
THE BANANA STOP
Pay off your mortgage or student loans
Paying off a big debt, like a mortgage or student loan, frees up a big portion of your income that can then be used for other investments and savings.
THE ADRENALINE RUSH
Pay off your credit cards
High-rate debt—anything above 9% interest—is considered toxic debt. Paying off this debt before you retire is key to stretching your retirement dollars.
THE LAST HILL
Natural disasters and other life events
Unexpected life events, such as a natural disaster, death in the family or divorce, can throw off your retirement plan. In some cases, it’s best to reach out to a professional, like a lawyer, and having the extra protection of an insurance plan helps too.