If you’re like other Baby boomers, you’ve been saving for retirement for a while now. You probably started early on thinking about your retirement and chances are you’re still at it.
If you want to succeed in successfully funding your retirement, it’s important to avoid some common retirement planning mistakes. By participating in the plans that are available to you, diversifying, and leaving the money alone, you can largely guarantee a financially successful retirement.
To reach your goals and make your retirement dreams come true, it’s best to avoid these common retirement planning pitfalls.
Non-Participation
1. Failing to participate in any retirement plans available to you. Today, there aren’t many companies offering pensions anymore. However, most companies offer plans such as a 401k or similar to their employees.
Typically it’s easy for you to enroll and most of these programs are incredibly worthwhile. Interest-deferred accounts are tough to beat. Enroll today, if you haven’t already. It really adds up over time.
* If your company matches a percentage of your contribution, so much the better. It’s like a raise you didn’t have to earn. Free money is free money and it’s always good.
No diversification
2. Lack of diversification and playing hedge fund manager. Avoid the temptation to play hedge fund manager with your retirement accounts. That’s great if you’re Warren Buffet (you’re not) and spend 40+ hours a week investing. For the average person, the best advice is to keep investing every month like clockwork.
* Avoid becoming overly worried about the instability in the Middle East or the typhoon that just struck Cameroon.
Spread your money around. It’s true that diversifying potentially limits your gains, but more importantly, it will limit your losses. Large losses can take decades to rectify. Diversify your retirement funds.
Borrowing Retirement Money
3. Borrowing money from your retirement. It might be allowed, but that doesn’t mean it’s a smart thing to do. Anytime you take money out, chances are that it will never find its way back in.
* When borrowing from your retirement is an option, consider the long-term effects and ensure it’s the right choice for you. Remember that you not only suffer the lost future earnings if you don’t pay it back, but also there’s the 10% tax penalty when you take it out.
Cashing Out Your Retirement Account
4. Cashing out. It’s surprisingly common for people to cash out their plan when they leave a job instead of rolling the money over.
* Moving expenses, vacation, a down payment on a new house, and more can use up the money faster than you realize. Be mindful of this and think long and hard before cashing out your retirement account.
* Talk to your accountant about rolling over the funds straight into your new plan. It’s easier when you don’t touch the money in the first place.
Too Much Of One Stock
5. Way too much of your employer’s stock… remember ENRON?
Even though you might get a good deal on buying the stock because you work there, company stock should only make up a small part of your retirement plan. If the stock is attractive, you can certainly include it in your plan. However, remember the importance of diversifying your portfolio as well.
As with many things, avoiding mistakes is often the key to being very successful.
If you can simply avoid these five common retirement planning mistakes, your odds of having a financially successful retirement go up dramatically.
