5 Retirement Mistakes That Could Cost You Millions, According to George Kamel

Getting your finances ready for retirement is extremely important. While setting money aside helps significantly, there are things to remember that can maximize your retirement savings or prevent you from losing them.

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George Kamel, a personal finance expert and frequent ‘Ramsey Show’ co-host, has put a lot of thought into how to manage your retirement savings best and shared some advice in a recent YouTube video . Here, he’s come up with five major retirement blunders that could cost you millions.

Money mistakes the super wealthy never make - that you might be doing now.

Failing To Plan Ahead

Retirement planning is a vital step that seems obvious. However, more and more people are pushing it to the side and spending their income on the present. The Federal Reserve reported that a quarter of Americans don’t have any money saved in a retirement account.

Likewise, Kamel says a study by Ramsey Solutions found that 48% of Americans have less than $10,000 put away for their retirement, which will last about three or four months.

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Many Americans may plan to lean on Social Security in retirement, but Kamel strongly advises against this. The Social Security website states that in January 2024, the average Social Security benefit was $1,907. While that amount is helpful, the annual sum is around $22,000, only $7,000 above an individual’s $15,060 poverty line. Even if you think you could live off this amount, Kamel points out that this is the average, and some people receive less than $900 per month.

Starting early with planning can save you this headache, and speaking with a financial advisor can get you on the right track. However, even simple steps like putting aside a percentage of your income or reviewing an online retirement calculator can make a big difference.

Retiring Too Soon

It’s a dream for many Americans to retire early, but doing so comes with some risks. If you’ve contributed large sums of money into retirement accounts, you won’t be able to access those funds until you turn 59½. Dipping into your Roth IRA or 401(k) early means paying penalties and throwing money away. In the same vein, withdrawing money early also means missing out on the magic of compound growth.

If you can gain a lot of wealth early in life and want to retire, it’s your choice. To those considering this option, Kamel points out that putting off retirement and working a few more years can make a huge difference. The effects of compound interest on a few extra years of income can catapult your retirement savings to the next level.

Skimping on Your Investments

Taking money out of your monthly income and putting it in a shoebox under your bed is technically saving money for retirement, but it’s retirement saving in hard mode. Retirement saving on easy mode requires investing. Kamel states that when it comes to retirement accounts, 80% to 90% of the balance is growth. This means that only 10% to 20% was money you deposited over the years.

Compound growth is when the money you invest begins to make more money. The way it works is you gain interest on your initial investment. The interest becomes part of your investment, making it a larger sum. The next time around, you gain interest on your initial investment and the interest you accumulated next time.

This process of compound growth continues to snowball until you end up with much more money than you originally put in. While it seems like an obvious investment strategy, it requires a lot of patience. In a world where everyone is trying to get rich quickly, it’s becoming less popular but no less effective.

Kamel urges you to get started even if you’re in your 40s or 50s and haven’t started saving yet. By taking it seriously and putting large amounts into a tax-advantaged retirement account like a Roth IRA or a 401(k), you can still end up with a large amount for retirement. Keep in mind that the older you are, the more of your monthly income you’ll need to contribute to maximize your results.

Not Diversifying

When you set up a retirement account and contribute money, you choose where the investments go. While these accounts offer a tax advantage, they don’t invest your money for you. However, in the case of 401(k)s, your employer will limit what you can invest in.

If you’re able to choose, diversification is important. Diversification means investing in various assets to protect yourself from risk. When you put all your money in a single stock and the value drops significantly, your portfolio loses value. However, spreading your investments across multiple assets can help protect your portfolio. When you diversify, if one asset’s value drops, another’s may rise.

Kamel suggests investing in mutual funds. These take money from many different investors and buy a diverse range of assets, amounting to 120 different stocks. The diversity of a mutual fund can withstand the ups and downs of the market.

Specifically, Kamel advises looking for growth stock mutual funds with long track records. However, he goes even further to say that you should diversify your mutual funds and purchase growth, growth and income, aggressive growth and international funds.

Making Bad Investments

Investing is an essential part of saving for retirement. However, you shouldn’t just throw your money into anything. Today, more and more investment options are popping up, including new stocks, cryptocurrencies, NFTs, and alternative investments. These investments could lead to impressive gains but come with a lot of risk.

As a rule of thumb, Kamel advises avoiding high-risk investments when dealing with retirement savings. It’s better to do things the old-fashioned way. Consistently put 15% of your income into a Roth IRA and 401(k) to capitalize on tax advantages. Invest in stocks, bonds and funds that are safe but will make you money with compound interest over the long run.

Once you’ve maxed out these accounts for the year, Kamel advises investing extra money into paid-for real estate or other index funds outside your retirement accounts.

This article originally appeared on GOBankingRates.com : 5 Retirement Mistakes That Could Cost You Millions, According to George Kamel