Working taxpayers who are over 50 years old have the ability to make catch-up contributions to their IRA, Roth IRA, and 401(k) accounts. There’s nothing bad about this, but the people who are able to make contributions in their 20s, 30s and 40s have much longer for those contributions to earn a return over time to finance their retirement income needs.
Still, if you’re 50 or older, catch-up contributions can help get your retirement savings back on track and correct the financial mistake of not contributing earlier in your career.
Don’t cash out your 401(k)
One of my worst financial mistakes was cashing in 2 401(k) accounts — 1 in my 20s and the other in my 30s when I changed jobs. I had a logical reason to do it both times. I was using the money to finance the down payment on a house. The housing appreciation was so strong in both cases that it’s nip and tuck whether it was the right decision. I still score it as a regret now that I’m within a decade of retiring.
Wait to take Social Security
One of my parents’ worst financial mistakes was listening to a broker about investing in a real estate master limited partnership. They lost over 80% of the money they invested in the MLP.
Their other financial mistake? My father took early Social Security retirement benefits at age 62. For many it makes sense to wait until at least full retirement age, and tap his or her investments to finance retirement until his full retirement age.
Get the match
I counseled a millennial child against cashing in a 401(k) plan when she changed jobs. I lost that battle. I’m also losing the battle in getting her to maximize her employer match in her new employer’s 401(k) plan.
It’s embarrassing to me professionally, but she’s the decision maker, not me.
It’s called personal finance for a reason. It’s personal. That said, it’s my hope that the recent financial recession has gotten consumers to act more conservatively and find a balance in managing finances between current consumption and the need to invest for the financial future.