Financial regrets—we've all had some. But in "8 Financial Decisions You'll Regret Forever" Kiplinger asked financial planners and personal-finance experts about some of the most consequential mistakes people can make with their money. Here's what they said:
- Borrowing from your 401(k). It can be tempting, but this is a bad idea for many reasons. You'll probably reduce or suspend new contributions during the period you are repaying the loan. This means that you are short-changing your retirement account and losing out on employer matches, and you're missing the investment growth from the missed contributions and the cash that you borrowed. Before borrowing from a 401(k), look at other options.
- Claiming Social Security early. You are entitled to start taking benefits at 62, but you probably shouldn't. Wait until your full retirement age, right now at 66 and rising to 67 for those born after 1959, before tapping into Social Security. Delaying until 70 is even better.
- Paying the minimum on credit cards. The average household with debt owes $15,762 on credit cards, according to NerdWallet.com. It can take years to pay off credit card debt with mounting interest, especially if you keep charging. Stop making new charges, transfer the balance to a lower-rate card, and pay more than the minimum every month.
- Not saving for retirement. "I'll start saving for retirement when I make more money," many folks say. However, Morningstar calculated how much you need to sock away monthly to reach the magic number of $1 million saved by age 65, and assuming a 7% annual rate of return, you'd need to save $381 a month if you start at age 25; $820 monthly, starting at 35; $1,920, starting at 45; and $5,778, starting at age 55.
- Bankrolling your kids. Footing the bill for private tuition and other expenses at the expense of your own retirement savings could come back to bite you. You can't borrow for your retirement living, so explore scholarships, grants, student loans, as well as less expensive in-state schools instead of tapping into your retirement nest egg. No one plans to go broke in retirement, but it can happen by not saving enough to begin with.
- Passing up professional advice when you need it. Everyone can use a little good advice, particularly when talking about complex financial issues. Common but avoidable mistakes like dying without a valid will or not designating the right beneficiaries for your retirement accounts can create headaches for your heirs, with your wealth possibly going to the wrong people.
- Avoiding the stock market. Staying away from stocks because they seem too risky is one of the biggest mistakes investors can make. While the market has its share of ups and downs, since 1926 stocks have returned an average of about 10% a year. Bonds, CDs, bank accounts, and piggy banks don't come close. Some may say the stock market is risky and should be avoided, but this comes at the expense of low returns. In fact, you have not eliminated your risk by avoiding the stock market, but instead shifted your risk to the possibility of your money not keeping up with inflation.
- Quitting school. It's very rare that the student who skips school goes far in life. Based on U.S. Bureau of Labor Statistics data, a high school graduate working full time will have median lifetime earnings of $1.4 million, while a worker with a bachelor's degree will earn nearly $2.4 million, and a doctoral degree leads to median earnings of about $3.4 million over a lifetime.
Reference: Kiplinger (March 2016) "8 Financial Decisions You'll Regret Forever"