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Everyone makes mistakes with their money at some point in their life. However, some mistakes have a much larger impact—like those related to your retirement. Below are the pitfalls many people fall into when planning for retirement. Don’t let them happen to you.
Not saving at all for retirement
The biggest mistake people make is not saving at all for retirement. One of these days, you will want to quit working—and you’ll need something to support you in your retirement years. Plus, if you’re not contributing to your 401(k) plan and your company offers a match—you’re losing out on free money.
Not saving enough for retirement
What are your goals when you retire? Do you want to travel? Build a new home? Take up an expensive hobby? Whatever your goals may be, ensure that you’re saving enough money to pay for them once you retire. People are living longer—and you’ll need money to support you as you grow old.
Lacking portfolio diversify
Your retirement plan most likely offers five to ten mutual funds* as investment vehicles. Among these mutual funds, you should be diversified across various stocks, bonds, and cash. This allows you to enjoy highs and weather lows in the markets. Failing to diversify could expose you to additional risks and could put your retirement savings in jeopardy.
Neglecting higher contribution limits
In 2001, legislation was passed to increase contribution limits for 401(k)s, SIMPLE IRAs, 403(b)(7)s, and other retirement plans. This means that you can contribute even more money to your retirement plan (and if you’re age 50 or older, special catch-up provisions of the legislation allow you to contribute even more).
Underestimating the impact of 401(k) withdrawals
Many retirement plans allow you to take a loan or a withdrawal from your 401(k) plan. However, there can be severe consequences to this—everything from taxes, special penalties, and being unable to contribute while you have an outstanding loan. In addition, if you leave your job, you will most likely have to repay the loan within 60 or 90 days.
If you realize that you’ve made any of the above mistakes, now it the time to correct them. Speak with your investment professional and see what you can do to fix your mistakes—and avoid those pitfalls in the future.
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