Ten Mistakes That Can Upend Your Retirement
Pursuing your retirement dreams is challenging enough without making some common, and very avoidable, mistakes. Here are ten big mistakes to steer clear of, if possible.
- No Strategy: Yes, the biggest mistake is having no strategy at all. Without a strategy, you may have no goals, leaving you no way of knowing how you’ll get there—and if you’ve even arrived. Creating a strategy may increase your potential for success, both before and after retirement. (If you need a strategy or help, click here)
- Bad Investments: Chasing “hot” investments and following the crowd often leads to despair. Create an asset allocation strategy that is properly diversified to reflect your objective, risk tolerance and time horizon; then makes adjustments based on changes in your personal situation and value that may exist in the market.
- Slowing down your investments too soon: Don’t follow the academic view of the older you get the more you should have invested in bonds. Based on your given situation you may have to invest in stocks a lot longer than someone else or some academic model. Building wealth that allows you to accomplish your goals and have available money throughout your entire should be your ultimate concern.
- Not maximizing Social Security benefits: According to research, 70% of Americans take Social Security benefits sub-optimally. Most people leave money on the table. Social Security is one of the best hidden assets that individuals can tap during retirement. You can’t afford to leave money on the table. (Click here for a Social Security plan) 1
- Overlooking Health Care Costs: Extended care may be an expense that can undermine your financial strategy for retirement if you don’t prepare for it.
- Not Maximizing Tax-Deferred Savings: Workers have tax-advantaged ways to save for retirement. Not participating in your employer’s 401(k) may be a mistake, especially when you’re passing up free money in the form of employer-matching contributions.²
- Prioritizing College Funding over Retirement: Your kids’ college education is important, but you may not want to sacrifice your retirement for it. Remember, you can get loans and grants for college, but you can’t for your retirement.
- Not Adjusting Your Investment Approach Well Before Retirement: The last thing your retirement portfolio can afford is a sharp fall in stock prices and a sustained bear market at the moment you’re ready to stop working. The buy and hold strategy, when you’re getting ready to retire, must be adjusted and risk managed more closely.
- Retiring with too Much Debt: If too much debt is bad when you’re making money, it can be deadly when you’re living in retirement. Consider managing or reducing your debt level before you retire.
- It’s Not Only about Money: Above all, a rewarding retirement requires good health, so maintain a healthy diet, exercise regularly, stay socially involved and remain intellectually active.
Source of research, Social Security Solutions.
Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.