What are common pitfalls regarding Aim>Save>Invest>Spend?

Aim: Few people spend the time to determine how much they will need to retire and when, and how much to save now to achieve that goal, often times because it is difficult to find good tools to calculate those answers. WealthStep was created to address that problem.

Save: Mostly people simply don’t save enough, often because they don’t know their “Aim” number and therefore also don’t know how much to save, and most people don’t start saving early enough. Some think that saving a small amount won’t matter, but if you’re getting started at a young age, even a small amount can make a big difference over time with the tax benefits and power of compounding. As your ability to save increases, increase your savings rate appropriately, using WealthStep’s Planning/Saving module as a helpful guide.

Invest: Too many people invest emotionally, or chase “the hot dot” (recent strong performers), rather than investing on a disciplined, strategic basis. Investing with an asset allocation (ideally a pre-built asset allocation option) appropriate for each life stage and doing so consistently, often has the best outcomes over time, when considering both risk and return.

Spend: Few people know how much they can spend without running out of money before the end of their retirement. WealthStep’s savings recommendations are based on your projected yearly in-retirement spending needs, so consider that as a reasonable spending rule. For additional reference, the “4% rule” or something similar can be a rough tool to help determine a reasonable spending level, and special circumstances may require the assistance of a professional.

Remember to update your WealthStep advice annually to make sure you adjust your saving and investing wisely over time, given that your life stage, earnings, savings, retirement goals and other factors will evolve.