6 Ways You’re Blowing Your Retirement SecurityJennifer Anderson
Everyone needs to prepare for their retirement. You may think you can’t afford it, but the truth is, you can’t afford not to. However, important as it is to build up a nest egg, it’s just as essential to do it the correct way. There are a number of retirement planning mistakes people make that can end up completely blowing their savings, leaving them without enough to live on once they leave work. Here are six of those mistakes, and how you can avoid them.
- Not Planning Things Out There’s a lot more to retirement planning than just “Save as much as you can.” You need to know exactly how much you can afford to put away each month, where and how you want that money invested, and most importantly, the total you’ll need to save up in order to support yourself in your golden years. Without a specific plan in place, you’re likely to end up without as much money as you need. Talk to a financial adviser and figure out what the best way is for you to save for retirement.
- Thinking Any Amount of Saving Is Fine Almost as bad as going in with no plan at all is thinking that as long as you’re saving something, you’re doing well. It’s true that something is better than nothing, but it’s likely still not going to be enough. There are a variety of factors that contribute to how much you’ll need, including the rate of inflation, how long you’ll live after retirement and more. Because it’s such a complex equation, most people tend to underestimate how much they’ll need to carry them through—sometimes drastically. It’s crucial to sit down and figure out exactly how much you need to put away, so that you have a goal to work towards.
- Risking Too Much on Your Investments—or Not Enough Some people look at their investment portfolio as an opportunity to strike it rich. They imagine a few lucky stocks, bought low and sold high, can make them a millionaire and allow them to retire in style. This is extremely inadvisable. The more risk you take on, the more likely you are to lose everything. On the other hand, not enough risk can be a problem as well. By playing it too safe, your returns will be significantly lower than you need, which can lead you to make mistakes while trying to get the numbers up.
- Paying Too Much in Taxes Unless it’s a Roth IRA or 401(k), your retirement account, much like your regular income, is subject to taxes. However, there are a variety of tax breaks and loopholes you can take advantage of. Are you getting everything you can back from the IRS? The more you pay, the less you’ll have for yourself, once you leave work. Also, if you trade too much—or if your mutual funds do—your taxes will be higher. Minimize the amount of trading you do to improve your returns.
- Taking Generic Advice as Gospel To whom do you listen when deciding where and how to invest your retirement fund? A lot of the advice you see in the media from financial experts, no matter how loud and emphatic it is, is not as reliable as it seems. Remember much of it is just their opinion, and the next expert may think something completely different. Also consider that everyone’s situation is different. Many of the experts you see on television get paid a great deal to be on television, thus they can afford to take higher risks than you can. Take what they say as a guide, but not as incontrovertible. Talk to your own financial planner about your personal circumstances, now and in the future, and see what they think will work best for you.
- Not Having a Gold IRA The markets can be pretty volatile at times. When the 2008 crash occurred, millions of workers who had saved for years suddenly lost a large chunk of their retirement funds. It’s vital to protect your investment by spreading it around. That’s where a Gold IRA comes in. Gold typically goes up when the markets are going down. Also, as a physical commodity, it can act as a safe haven, which retains its value over time. That way, if something happens to the money you have invested in the markets, you still have something to fall back on.
What’s more, unlike cash, gold resists inflation’s erosion of buying power over time. With the Fed’s plan to continue interest rate hikes over the course of 2017, inflation is back on the table.
These are just a few of the retirement planning mistakes people make every day. Do your research and find out what the best investment plan is to meet your needs, and how you can structure it to avoid the pitfalls that might otherwise wipe you out. If you’re smart and careful, you can build up a nice nest egg that will support you, rain or shine, throughout your golden years.