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This story originally appeared on Business Insider
Lakisha Simmons, an associate professor of analytics at Belmont University and author of “The Unlikely AchieveHer,” had always taken advantage of her workplace retirement accounts. When she got her first job out of college, she began contributing up to the employer’s match on her 401(k). When she started another job at a state university, 10% of her salary went into a 403(b).
At one point, she even hired a financial advisor to help roll over her retirement contributions and give her advice on other financial matters. In her mind, all the boxes had been checked when it came to taking the right steps for retirement.
It wasn’t until she went through a divorce that she realized she hadn’t been saving enough for her retirement. As a single mother with two children under the age of 10, plus a mortgage, she now had more financial responsibilities on a single income.
Her fears prompted her to take inventory of her retirement funds. At the age of 37, she assumed that her years of contributions would have gotten her close to building a comfortable financial future. But contributing the minimum had not been enough.
Upon recognizing that, Simmons was able to get herself on track and within a matter of four years, she managed to accumulate $750,000 between savings and investments, according to financial records viewed by Insider.
Here are some of the top mistakes she made along the way and how they can be avoided.
She didn’t take into account her personal retirement goals
Simmons wanted to have the option to retire early, or before the age of 65. So when she took score of how much she had accumulated by 37, she was surprised to see that she was nowhere near that goal.
She hadn’t put clear thought into what retirement meant to her and how much money she’d actually need in order to achieve that goal. This is an important step to take because the answer to this question will vary for everyone and will depend on expenses, income, lifestyle, and when you plan to retire.
Once you figure out how much money you think you’ll need in retirement, you can set up a monthly contribution plan that will help you reach that goal based on the number of working years you have left.
She was contributing the minimum
At Simmons’ first job, she had a 401(k), but only contributed up to the employer’s match. After she got a job at a state university, 10% of her salary went into another type of retirement account, a 403(b). When she checked in with her financial advisor, she was told that was the recommended amount.
“I thought, OK, this is what this person is telling me, fine. So I didn’t put anything [more] in because that’s what I was told,” Simmons said.
Financial planner Mari Adam of Mercer Advisors says saving for retirement without a solid plan is very common. But you’re less likely to meet your goals if you don’t have a clear endpoint in mind.
“Ten percent is kind of the minimum; it could be much higher depending on when you start, what kind of social security you’re going to get,” and your expected cost of living, Adam said. “The 10% we use as a rule of thumb, but right now it’s the bare minimum I would say.”
Once Simmons realized she hadn’t been doing enough, she began maxing out her retirement contributions every year.
Her monthly expenses were too high
Simmons kept the marital home after her divorce because she didn’t want to displace her children. But she was on the hook for the mortgage on a single income. She also had additional bills such as cable TV, high cellphone plans, and various subscriptions that were stacking up.
Eventually, Simmons sold her home, cutting her housing expenses in half. She also cancelled cable and replaced other services with cheaper alternatives. All these moves allowed her to free up funds to invest.
Financial planner Nadine Burns of A New Path Financial recommends keeping your housing expenses to a fixed percentage of your income. If you’re renting, that percentage should be at about 20% of your gross income. If you own a home, that amount can be slightly higher at 30% of your gross income, but this should include the mortgage, taxes, mortgage interest, homeowners insurance, and utilities.
She didn’t stop to take inventory of her assets
Simmons had not considered what her assets versus her liabilities were until she felt financially insecure. Since she waited so long, it gave her less time to correct her mistakes.
Adam suggests taking inventory of your assets once a year, and at most, every five years. Your assets include your 401(k), IRAs, and other investment accounts, but not the value of equity in your home unless you plan to sell it.
She recommends using what’s called the assets to income ratio, which she shares on her blog, Charting Your Financial Future, to figure out whether you own a good amount of assets relative to your age. It compares the value of your assets to your annual income. This marker is often used by financial planners as a measuring point.
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