By Ryan Velez
It’s easy to feel that retirement is miles away, especially when you are dealing with financial issues in the here and now. However, some of the biggest mistakes you can make now are neglecting your future during your 20s and 30s. Chris Heerlein, a partner at REAP Financial LLC and author of Money Won’t Buy Happiness – But Time to Find It, explains that while this is easy to understand, “Then before you know it you pass 50, and you realize you missed a great opportunity to take advantage of compound interest.” He recently discussed some of the major mistakes that young people make with Black Enterprise.
Heerlein recognizes that most employers don’t offer a 401(k) or similar retirement plan, but if yours does, you need to get involved now. It can be shocking how many people miss out on this saving opportunity, particularly if you start in your 20s and continue to be a faithful contribute for decades. “And if your employer is offering matching funds, that’s free money,” Heerlein says. “You need to jump on it.”
At the same time, you don’t want to get tunnel vision with your options. “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. When you do withdraw in retirement, you will pay taxes because the taxes are deferred. As a result, keep an eye out to put balance in your portfolio. Options include a Roth IRA, a Roth 401(k) or a health savings account. Roth funds don’t result in taxes because you pay them when the money goes in rather than in retirement. HSA money won’t be taxed if withdrawn for qualified medical expenses.
Many millennials have memories of either them or their parents losing big with their investments during the 2008 financial crisis. As a result, Heerlein says that many people have become too conservative with their investments. It’s one thing to play it safe, but people may be leaving money on the table by holding back too much. “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.”