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Top 12 Retirement Planning Mistakes To Avoid
Learn from other people’s mistakes and invest with confidence
By: Pinyo Bhulipongsanon
by Jane L. Doe
Copyright© 2009 by InvestorGuide.com. ALL RIGHTS RESERVED.
and company tax-deferred savings plans. Get an estimate of any company pension plan. You can find this information from the U. Census Bureau. Copyright© 2009 by InvestorGuide. consulting a financial planner. 2 2 . or better yet. you can determine what you need to do between now and retirement in order to achieve your retirement goal. people are living longer so retirees are spending 30 years or more in retirement. you need a plan. Some important factors you might want to consider include: • • • • The age at which you plan to retire. Your life expectancy.Top 12 Retirement Planning Mistakes To Avoid Mistake #1: Saving For Retirement Without A Plan Nowadays. ALL RIGHTS RESERVED. It is important to plan ahead if you want to maintain your standard of living during that time. Once you have this information. Your retirement income needs. and your future Social Security benefits. Your current situation and the gap between what you have versus what you need. IRAs. But you can’t simply save and hope for the best. This can be done more easily with a retirement calculator. Investing in tax-deferred savings plans and other sources can help you get to a comfortable level for retirement.com.S. Look at the current value of regular accounts.
Consider the following (assuming a 10% annual return): Who do you think would have more money in 40 years? • • Saver A contributes a fixed amount every year for the first 8 years and then does nothing for 32 years. learning how to handle money is the best one.com. starting a little earlier makes a big difference. Get started today! Copyright© 2009 by InvestorGuide. ” Mistake #2: Not Starting As Soon As Possible No matter how young or old you are.Top 12 Retirement Planning Mistakes To Avoid “Every young man should have a hobby. get started today. Due to the miracle of compounding. the first person would be ahead at the end. 3 3 . or Saver B does nothing for the first 8 years and then contributes that same amount every year for the next 32 years – Jack Hurley Believe it or not. ALL RIGHTS RESERVED.
and willingness to take risk. Then. Copyright© 2009 by InvestorGuide. Chances are. even retirees need equity exposure to outpace inflation. an optimal More tips on InvestorWords.Top 12 Retirement Planning Mistakes To Avoid Tips: • • Be Honest About Your Risk Tolerance Invest in Stocks While Young.com portfolio of investments will be crafted that takes the lowest level of risk necessary to earn that potential return. and a mix of stocks and bonds as retirement approaches. ability. that portfolio will include a healthy dose of stocks for growth potential and to help protect your purchasing power. the more risks you should be willing to take in pursuit of higher returns. this means investing in stocks and stock mutual funds when retirement is far away. ALL RIGHTS RESERVED. 4 4 . your planner will estimate the average annual rate of return your savings and investments must earn to help meet your spending requirements and other goals. As part of the retirement planning process. In general. The fact is. needs.com. Bonds While Older Investor Risk and the 5 Ways to Evaluate It Mistake #3: Not Taking Enough Risk or Taking Too Much A common mistake many people make with their retirement investment plan is not having the right level of risk with respect to their age. • In general. the further away your retirement is.
Mistake #4: Not Saving On A Regular Basis Little by little is the best way to achieve big goals such as retirement.” and not making regular savings a priority.Top 12 Retirement Planning Mistakes To Avoid Tip: Avoid the habit of contributing to your retirement fund only if there happens to be any cash left over at monthend. This is one reason why 401(k) plan is a good tool to save for retirement.com. set aside a specific amount each month for retirement before paying other bills. ALL RIGHTS RESERVED. and increasing your contributions each year. It is a mistake is to saving “whenever you can. Copyright© 2009 by InvestorGuide. Don’t make the mistake of saving for a few years. when you start savings for retirement. 5 5 . investing in funds. the whole process of contributing to your 401(k) plan. Saving even a small amount regularly is much easier than trying to save it all at once. make it a point to keep saving at the same cadence. then stop. and the most practical way to achieve your this is to start early and contribute regularly to your savings. Without fail. Also. retirement savings is a long-term endeavor. and rebalancing your asset could be automated. Depending on your company’s plan administrator. For most people.
• • Traditional IRA – Allows you to make tax-deferred investments by applying your contributions as tax deduction.com. 6 6 . and how they could be used in combination with your non-retirement investments to maximize performance.Top 12 Retirement Planning Mistakes To Avoid Mistake #5: Not Taking Full Advantage of Retirement Vehicles There are many retirement vehicles to choose from and you should learn about the advantages and disadvantages of each. Major benefits include easy regular contributions via payroll deductions and potential company matching contribution. ALL RIGHTS RESERVED. Roth IRA – Allows you to invest after-tax dollars and your investment grows tax-free. Copyright© 2009 by InvestorGuide. Be sure to take full advantage of all the options available to you. Some of the major retirement vehicles include: • 401(k) – Allows you to invest tax-deferred by applying your contributions as tax deduction and let you pay taxes upon withdrawal.
it is a good idea to work with a fee-based CERTIFIED FINANCIAL • • More tips on InvestorWords. For example. They go to their doctor’s office at the first sign of a problem. ALL RIGHTS RESERVED.com PLANNERTM who can help review your investments and provide advice.com.Top 12 Retirement Planning Mistakes To Avoid Tips: • Questions to Ask and Criteria to Use When Evaluating a Money Manager Common Mistakes That People Make While Picking a Financial Advisor Finding an Advisor Mistake #6: Not Seeking Out Professional Help When was the last time you had a professional financial planner review your retirement plan and investments? I am willing to bet that most of you would say NEVER. Copyright© 2009 by InvestorGuide. They hire plumbers and electricians when they encounter problems. Why not hire a professional financial planner to help you with your retirement plan and investments? In general. and possibly the largest savings that you have today. The funny thing is that most people are less willing to take this type of risk with other aspects of their lives. be sure to steer clear of "advisors" who act like salespeople and pitch financial products based on commissions. they hire professional home inspectors and appraisers when buying a house. When choosing your advisor. 7 7 . Yet we are talking about the most important part of your finances.
who are very-well known for having the most successful endowments today. regardless of current market conditions. The best examples are Harvard and Yale. If everything you own is moving in the same direction. ALL RIGHTS RESERVED. proper asset allocation and diversification is the best way to grow and protect your investments. Let’s look at Harvard asset allocation and diversification strategy : Do you notice the difference between Harvard’s and your investment portfolio? My guess is that your portfolio is not nearly as well-diversified as you think. at the same rate.com. and you could stand to reconsider your asset allocation choices. your portfolio is probably not well diversified. Note: 2010 planned endowment Copyright© 2009 by InvestorGuide. Mistake #7: Poor Asset Allocation and Diversification For most investors.Top 12 Retirement Planning Mistakes To Avoid Tip: Always keep a diversified portfolio. 8 8 .
you have to pay 10% early withdrawal penalty.com. ALL RIGHTS RESERVED. When you cash out your retirement savings before qualified retirement age. The lesser evil of the two is to borrow against your 401(k).Top 12 Retirement Planning Mistakes To Avoid Mistake #8: Cashing Out of Borrowing Against Your Retirement Accounts What is the fastest way to kill your retirement savings? The answer is simple – cash it out and use it today. If you are withdrawing from taxdeferred accounts such 401(k) or Traditional IRA. Remember what you spend today won’t be there for you to use during your retirement. Aside from not letting your money grow. if you lose your job or quit. 9 9 . This typically wipe sout 30-40% of your withdrawal before you can even get to your money. you have to pay back the loan in full or risk paying the early withdrawal penalty and taxes. you also have to pay taxes at your current income tax rates. Copyright© 2009 by InvestorGuide. Finally. Your retirement savings are not meant for your short-term needs. you are giving up free money as well. you’ll most likely stop contributing to your retirement savings while you are repaying your loan. If your company provides matching contributions.
10 10 . there is a maximum limit that may be lower than what you would otherwise get. Additionally. This means that it could or could not be there when you need the money. • More tips on InvestorWords. For many people. ALL RIGHTS RESERVED.com. these income sources are insufficient to maintain their desired standard of living. Not to mention that our Social Security system has been under stress for many years. your company could go bankrupt and put your pension benefit under distress. or the benefits could be reduced. Although the federal government’s Pension Benefit Guaranty Corporation helps protect your interest. Moreover.Top 12 Retirement Planning Mistakes To Avoid Tips: • • Maximizing Social Security Benefits Early Social Security Benefits and Long Life Spans Studying Up on Social Security Mistake #9: Relying Too Heavily On Social Security Or Company Pension Social Security and company pensions are just part of your overall retirement plan. A strong retirement plan includes income from Social Security and pensions.com Copyright© 2009 by InvestorGuide. but does not rely on them as the primary sources of income. there are many rules and exceptions that could reduce your payout.
MCI WorldCom. loyalty should have its limits.Top 12 Retirement Planning Mistakes To Avoid “Loyalty is powerful. especially when it comes to investing in the stock of the company that you work for. Unless you have an undying faith in your company. Copyright© 2009 by InvestorGuide.com. Let’s assume half of your 401(k) value is tied to your company stock. it is best to avoid your company stock altogether. or just like to take unnecessary risks.” – Anonymous Mistake #10: Investing Too Much In Your Company Stock Investing in your company stock is possibly one of the worst offense against diversification. ALL RIGHTS RESERVED. What would happen if your company goes belly up? Essentially. 11 11 . Talking about putting all your eggs in one basket. you lose your job and half or your 401(k) savings at the same time! You may think this could not possibly happen to you. Just ask ex-employees of Lehman Brothers. But when it comes to investing. and Enron – just to name a few.
buys and sells Another type of expense to avoid is chasing performance.e. And due to compounding. ALL RIGHTS RESERVED. these expenses can really eat away your gains and leave you with lackluster performance. Copyright© 2009 by InvestorGuide. Here are some ways to you can reduce your expenses: • • • Avoid mutual funds with sales load and redemption fee Avoid mutual funds with high expenses and turnover ratio Avoid frequent trading – i. 12 12 .Top 12 Retirement Planning Mistakes To Avoid Mistake #11: Investing In Expensive Or Hot Investments Investment expense is about the only variable that you can control when it comes to investing.. unfortunately. this is by far the easiest way to lose money in the market. Hot investments are those which have done well in the most recent time frames. please do not invest your portfolio in the hot funds or hot stocks.com. Whatever you do.
You should avoid overly conservative investments early in retirement – specifically. Solin Mistake #12: Not Investing During Retirement Some people falsely believe that all the hard work is done once they retire.” – Daniel R. ALL RIGHTS RESERVED.com. • Review and update your retirement plan regularly. that is simply wrong. Just because you retire doesn’t mean you stop planning for retirement. You still need some stocks and stock mutual funds to stay ahead of inflation. you could be spending 25-30 years in retirement and it is more important than ever to make sure that your retirement savings last. With today’s longer life expectancy. Here are some things to keep in mind: • • You should maintain a conservative withdrawal plan with 25-30 years in mind. 13 13 . Copyright© 2009 by InvestorGuide. Unfortunately.Top 12 Retirement Planning Mistakes To Avoid “How you invest during retirement is as critical as how you invest in preparing for retirement. don’t shift all of your investments into fixed-income. This means you have to keep and eye on your investments and spending.
Please tell us what you think Your feedback is very valuable to us.com. please tell us what you think about this free report by filling out this brief survey (estimated time 2-5 minutes). ALL RIGHTS RESERVED. Please feel free to share this Free Report If you like this Free Report.com is the most comprehensive financial glossary on the web.Top 12 Retirement Planning Mistakes To Avoid About InvestorGuide.com InvestorWords.com and InvestorWords.com is a financial information portal that provides content and tools that enable individuals to better manage their money. equipping individuals with the financial knowledge necessary to understand the basics of investments. Copyright© 2009 by InvestorGuide. please feel free to send this to your friends and family. 14 14 . InvestorGuide.
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