So a person has taken the first financial steps into making a future that when she or he finally leaves the office, that nest egg will make the retirement a good one. Now, it is time to make sure those first steps do not lead into a stumble that hurts your savings. Here are some pitfalls to look out for.
Like in any other strategy, short-term planning or creating plans with little information make all other pitfalls look quaint. For example, does the individual know the differences between stocks and bonds? Have they made sure their portfolio is actually diversified or do they just have same type of stocks across different mutual funds? These are just some things to consider about as you prepare your retirement strategy.
It might not be in the nature of a retiree to make as many risks as he or she used to. However, if a person is not willing to adapt to the changes even at that late a stage then their retirement is already in danger. It is unwise to make an entire retirement plan hinge on outside factors like a perpetually stable market or no raises in healthcare costs. That way of thinking about will insure a bad hit on anyone’s retirement savings. The best way to fight this is to be fluid in all aspects of retirement. A willingness to change strategies and a close eye on market shifts will hold savings in a safe position for it to grow.
No Portfolio Diversity
This is a pitfall that sadly many fall because of the dreaded fear of making a portfolio that has anything else than bonds. The word “stocks” bring thoughts of ruin, especially after the 2008 US market crash. However, stocks are a safer choice than most think. Historically, they have done better than bonds in producing income in the last few decades. This does not even include other options like mutual funds, real estate, or even investing in a local business. The potential growth increase with a spread-out portfolio is something no investor should overlook.
Cashing Out Too Soon
Making an early withdrawal of money from a retirement account can affect an investor in many ways. A very dangerous withdrawal plan that is an example of this is when taking out loans from a 401(k) account. What makes it a bad idea is that the money loaned is double-taxed – first from the after-tax money from the loan itself, and then again when you withdraw money from the retirement account later. Of course, there is also the loss of compound interest since the overall amount in the account has lowered. If a person looked at their retirement income solutions ahead of time, he or she would see this error. The answer to this is simple: Don’t make these costly withdrawals, and make sure to always have cash on hand as you put money into your retirement account.
The process of creating a retirement plan is something too important to be passive about. The options and possible mistakes can be daunting, but with enough homework and help the path to retirement can be a smooth one.
Post by Isabel