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  • Writer's pictureMichael DiBartolomeo

12 Retirement Investment Blunders to Avoid

Updated: Oct 9, 2019

So you're looking to start a retirement savings plan to maximize you and your family's future.

Congratulations on taking the first step towards financial peace in your later years. Your 70-year-old self will thank you for it later!

Be warned, however. There are a few mistakes you could make along the way that'll prove costly down the line.

Here are 12 retirement investment blunders to avoid while attempting to set yourself up for success later on in life.

1. Not Having a Plan at All

While this one may seem a bit obvious, it's worth noting to drive the point home: invest in your future! There are millions of Americans that make this mistake and pay the consequences for it later on.

Don't put yourself in a situation where you'll want or need to retire, but aren't financially able to do so.

2. Optimize Your Employer's Match

One of the best ways to save for your future is through a 401k plan your employer's installed match programs with up to a certain percentage.

Do yourself a favor and force them to use their max percentage, thus taking advantage of the employer match to its fullest.

Essentially, your employer's match on your 401(k) is free money that gets applied to your future.

For example, if your employer's match program is willing to match up to 5% of your salary, then take advantage!

Set it up where 5% of your paycheck gets applied towards a 401(k) and receive another 5% coming in from your employer. What a deal!

3. Tax-Advantaged Retirement Accounts

Once again diving into another savings plan that may be available to you through your work benefits program.

Whether it's through the 401(k) option listed above or an Individual Retirement Account (IRA) program, these programs help you benefit from taxes in one way or another.

Traditional 401(k)s and IRAs allow you to contribute pre-tax money, meaning taxes won't be taken out until you withdraw it in retirement.

The money you withdraw will then be taxed at the current rate, which is generally lower than if it were to be taxed right now.

A Roth IRA or a Roth 401(k), on the other hand, lets you contribute post-tax money, allowing you to withdraw it tax-free when you've hit retirement one day!

Do yourself a favor and force them to use their max percentage, thus taking advantage of the employer match to its fullest.

4. Taking a Loan out of Your Retirement Plan

Generally, people view their retirement savings as a back-up savings plan, which is both a dangerous and completely wrong way of looking at it.

The main benefit with a retirement savings account is the compounding interest on the money you contribute.

Should you take that money out of the account, it won't be able to grow and compound the way you'd planned it to.

Even if you were to replace the money you took out, you would lose out on significant interest during that time.

5. Cashing out Your Accounts

There's a modern-day misconception that when workers leave their jobs, the 401(k) plans they were contributing to stands pat.

They believe it's advantageous to cash out those 401(k) plans and contribute them to another 401(k) with their next employer...RESIST the temptation!

There are penalties and fees associated with an early withdrawal on 401(k)s, so letting that plan stay as-is to collect more compounding interest would be more beneficial to you in the long run!

6. Not Diversifying Investments

It's understandable that you'd want to ride or die with Apple stocks, but doing so can compromise your entire portfolio.

The old saying "for every mountain, comes a valley" applies directly to how you should view the stock market.

The best way to avoid crashing hard when a certain investment crashes (and that'll happen from time to time) is to spread out your investments via diversification.

In this case, the risk does not justify the only-slightly-higher reward.

7. Putting It Off

Ah yes, the age-old saying that a lot of us use daily: "I'll do it later."

However, putting off investing in your retirement means you'll always be significantly behind where you could've been, had you started with less, sooner.

Simply put: it's almost impossible for you to save enough 2 years from now to catch yourself up to where you would've been, had you started saving today.

8. Not Balancing Your Portfolio Every so Often

There's a method to every madness in stock investments.

Whether you started with an aggressive plan or kept it more reserved, there's always time to reassess and rebalance your plan of attack.

Take the time every few years to rebalance your portfolio with a financial expert to adjust both your savings and returns accordingly.

9. Not Factoring Healthcare Into the Equation

Most people may feel proud of themselves for factoring in possible expenses and balancing it with how much they need to retire.

However, they often don't factor in the ever-growing healthcare expenses they'll need to pay for. It's hard to know how much you'll need, but the average retiree in today's age spends around $4,300 a year out of pocket on healthcare.

Play it smart; assume you'll be paying more than that once you retire, and save accordingly!

10. Not Accounting for How Long You'll Be Retired

Your retirement savings plan is geared towards helping you pay for everything from the moment you retire until the end of your life. Seeing as how that could be over 30 years, it would prove very costly to underestimate.

The common suggestion among many financial planners is to retire no earlier than 70 years old and to have a significant retirement savings plan before doing so.

11. Overlooking Inflation

So you've set up a retirement savings plan with a trajectory to help you accrue over $1 million before you retire...Sounds pretty good, right?

BUT, due to common inflation, that $1 million may only have the purchasing power of around $500,000 in today's currency.

Pair that with a retirement length you can't possibly be certain of until the day you actually retire (as mentioned in mistake #11), and you may not be as well suited as you think.

The key lesson here: don't settle for what you think is good enough by today's purchasing power standards. Those will change over time.

12. Signing up for Medicare Too Late

Did you know that the premiums on your Medicare rise by 10% each year you could've enrolled, but didn't?

Most people think they should wait to sign up for Medicare after 65 years old if they don't need it immediately, in an effort to avoid paying for something they don't need yet.

However, those premiums will have you paying the same amount (if not more) whenever you finally do apply for it.

You become eligible for Medicare three months before you turn 65. Sign up for it as soon as you can!

Remember These 12 Retirement Investment Blunders to Avoid

Now that you know the 12 retirement investment blunders to avoid, it's time to begin by avoiding mistake #1 and starting a retirement savings plan!

Be sure to check out this article guide on hiring a financial advisor in Pittsburgh for tips on finding the right advisor for you.

For more inquiries, please reach out by phone at 844-686-8380.

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