Five common retirement planning mistakes that could be costing you

1 Missing out on compound growth

The strongest reason for getting an early start and sticking with your retirement plan is the magic of compound growth. Not only do your original contributions grow, but the growth itself can earn you even more.

Compound interest + Regular contributions

You invest $250 a month into a retirement account with an annualized interest rate of 3%, compounded yearly. You’re now 65 years.

• If you started investing at 25, you could have $229,297 accumulated
  
• If you started investing at 35, you could have $144,678 accumulated
• If you started investing at 45, you could have $81,713 accumulated

To take advantage of compound growth, you need to put money in your plan, so use the tools your plan provider may offer to set a retirement goal—and choose a contribution amount that will help you achieve it. Explore easy ways to keep your contribution amounts growing.

2 Leaving your employer’s match on the table

Many group retirement plans offer matching contributions on the money you put in. Matches are generally a small percentage of your salary.

Whether you look at this as giving yourself a raise or a free bump up in your retirement savings rate, the conclusion’s the same: If your employer’s plan offers a match, try not to leave any of it on the table.

3 Not factoring in your future retirement expenses

If you have a goal for the amount you should save for retirement, chances are good it’s an income-based measurement. For years, the standard measurement shown on account statements and planning tools has been the income replacement ratio, which means how much of your preretirement income your savings will be able to replace.

But if you’re looking for a more accurate target, you might try basing your goal on how much you’ll need to spend in retirement. Consider looking for tools that project your expenses throughout retirement—and your ability to meet them—based on your account data and other information you provide.

Remember how seeing that new car or phone made you even more committed to getting it? The same can happen when you take a look at your potential retirement lifestyle. Picture what you want to do in retirement and how much it’s likely to cost—it’s all part of the expense-based planning process.

4 Not focusing on your financial well-being

Are other financial priorities keeping you from making progress toward your retirement goals? If so, you’re not alone.

According to a recent Manulife survey, nearly 1 out of every 3 group retirement plan members expect to retire later than planned because they won’t be ready financially. The percentage is even higher than the previous year’s survey.

Top five financial concerns

1. Credit card debt
2. Not having enough emergency savings
3. Not having enough retirement savings
4. Repaying student loans
5. Current financial situation

Source: Manulife’s third annual stress, finances, and well-being survey, December 2022

Many group retirement plans provide access to financial wellness programs, including online tools and education, so make sure you take advantage of them. From creating a budget to dealing with debt, these programs are designed to help you improve your overall finances so you can find the cash for—and commit to—pursuing your long-term retirement goals.

5 Not seeking professional guidance and advice

Retirement saving and investing can be complicated and may lead some people to procrastinate and make mistakes that can easily turn costly. But the good news is that you may be able to get professional guidance and advice right through your group retirement plan.

These resources can take various forms, including online planning tools and education materials as well as presentations and webinars led by retirement experts. For a truly personal approach, consider seeking qualified, one-on-one advice. Workers with a financial advisor are almost twice as likely to say they have a very good/excellent financial situation than workers without.

For better results, plan carefully

Avoiding these common retirement planning mistakes can help you make the most of your group retirement plan and could improve your long-term financial well-being. By understanding the power of compound growth, taking advantage of your employer match (if applicable), considering your future retirement expenses, and using the resources and support available to you, you can work toward achieving your retirement goals and enjoying a financially secure retirement.