OK. So maybe we’re beating a dead horse, but we’ll say it again – everyone should be saving for their retirement. At the very least, if your company offers a retirement savings plan, such as a 401k, you should be participating to the maximum of your ability. So let’s assume that you are already putting money away. Is there more you should be doing? Maybe. Just don’t make these common mistakes:
- Not taking advantage of tax-favored retirement accounts. In addition to employer sponsored plans – of which 401k’s are just one of many – there are also IRA’s and Roth IRA’s. Some are tax-deferred, while other offer tax-free earnings.
- Not creating a plan. Think ahead and estimate the amount of money you might need for a comfortable retirement. Then, break it down into yearly amounts so you know how much you need to save. And don’t forget to make adjustments every so often to stay on track.
- Getting a late start. If you are young, start now. The magic of compound earnings will be on your side. If you are older, and still have not done so, start now. Better late than never.
- Not allocating assets wisely. Although nothing can ensure a profit, your mix of stocks, bonds and cash can make a difference. Your mix should be based on your risk tolerance, your investment time frame, and your goals. Be sure to make adjustments as the years go by.
- Not enough diversity. Though outside forces will always be a factor, minimize your chances of loss and maximize gains by spreading your money around within each allocation. You don’t want to put all your eggs into one basket.
- Saving for college instead of retirement. Remember, your children have options for their education, such as scholarships and loans. There are no other options for retirement. Fund your retirement first. Only then should you set money aside for college savings.
- Cashing out a retirement account when changing employers. Not only do you lose any potential future growth, you will also be subject to a 10% penalty in most cases. If you can’t leave the money in the current account, roll it over to your new employer’s saving plan, or transfer it to an IRA.
- Counting too heavily on Social Security. This is a big one. Social Security was never intended as a way to comfortably fund a retirement on its own. It’s a safety net. It’s up to you to determine what more you will need and then take the steps to get there.
Are you making any of these mistakes? We can help you navigate all the decisions. Call us.