Free Report Top 12 Retirement Planning Mistakes to Avoid

8/8/2019 Free Report Top 12 Retirement Planning Mistakes to Avoid

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Top 12 Retirement PlanningMistakes To Avoid

Learn from other people’s mistakes andinvest with confidence

by Jane L. Doe

“An investmentin knowledgepays the best

interest.”

By: Pinyo Bhulipongsanon

Copyright© 2009 byInvestorGuide.com.

ALL RIGHTS RESERVED.

BenjaminFranklin



Copyright© 2009 by InvestorGuide.com. ALL RIGHTS RESERVED.

Mistake #1: Saving For Retirement Without A Plan

Nowadays, people are living longer so retirees are spending 30 years or

more in retirement. It is important to plan ahead if you want to maintainyour standard of living during that time. Investing in tax-deferred savings

plans and other sources can help you get to a comfortable level for

retirement. But you can’t simply save and hope for the best, you need a

plan. Some important factors you might want to consider include:

• The age at which you plan to retire.

• Your retirement income needs.

• Your life expectancy. You can find this information from the U.S. Census

Bureau.

• Your current situation and the gap between what you have versus what

you need. Look at the current value of regular accounts, IRAs, and

company tax-deferred savings plans. Get an estimate of any company

pension plan, and your future Social Security benefits.

Once you have this information, you can determine what you need to dobetween now and retirement in order to achieve your retirement goal. This

can be done more easily with a retirement calculator, or better yet,

consulting a financial planner.

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Top 12 Retirement Planning Mistakes To Avoid

http://www.census.gov/compendia/statab/cats/births_deaths_marriages_divorces/life_expectancy.html







Mistake #2: Not Starting As Soon As Possible

No matter how young or old you are, get started today. Due to the miracle

of compounding, starting a little earlier makes a big difference.

Consider the following (assuming a 10% annual return): Who do you think

would have more money in 40 years?

• Saver A contributes a fixed amount every year for the first 8 years and

then does nothing for 32 years, or

• Saver B does nothing for the first 8 years and then contributes that

same amount every year for the next 32 years

Believe it or not, the first

person would be ahead

at the end.

Get started today!

33


“Every youngman shouldhave a hobby;

learning how tohandle moneyis the best one.”

– Jack Hurley

http://www.investorwords.com/1012/compounding.html

http://www.investorwords.com/1012/compounding.html




Mistake #3: Not Taking Enough Risk or Taking Too

Much

A common mistake many people make with their retirement investment planis not having the right level of risk with respect to their age, ability, needs,

and willingness to take risk.

In general, the further away your retirement is, the more risks you should

be willing to take in pursuit of higher returns. In general, this means

investing in stocks and stock mutual funds when retirement is far away, and

a mix of stocks and bonds as retirement approaches.

As part of the retirement planning process, your planner will estimate the

average annual rate of return your savings and investments must earn to

help meet your spending requirements and other goals. Then, an optimal

portfolio of investments will be crafted that takes the lowest level of risk

necessary to earn that potential return.

Chances are, that portfolio will include a healthy dose of stocks for growth

potential and to help protect your purchasing power. The fact is, even

retirees need equity exposure to outpace inflation.

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Tips:• Be Honest About Your

Risk Tolerance

•

Invest in Stocks WhileYoung; Bonds WhileOlder

• Investor Risk and the 5Ways to Evaluate It

More tips on InvestorWords.com

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Mistake #4: Not Saving On A Regular Basis

Little by little is the best way to achieve big goals such as retirement. For

most people, retirement savings is a long-term endeavor, and the mostpractical way to achieve your this is to start early and contribute regularly to

your savings.

It is a mistake is to saving “whenever you can,” and not making regular

savings a priority. This is one reason why 401(k) plan is a good tool to save

for retirement. Depending on your company’s plan administrator, the whole

process of contributing to your 401(k) plan, investing in funds, and

rebalancing your asset could be automated.

Also, when you start savings for retirement, make it a point to keep saving

at the same cadence, and increasing your contributions each year. Don’t

make the mistake of saving for a few years, then stop.

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Tip:Avoid the habit of contributing to yourretirement fund only if

there happens to be anycash left over at month-end. Without fail, set asidea specific amount eachmonth for retirement beforepaying other bills.

Saving even a smallamount regularly is much

easier than trying to save itall at once.

http://www.investorwords.com/11/401k_plan.html





Mistake #5: Not Taking Full Advantage of Retirement

Vehicles

There are many retirement vehicles to choose from and you should learnabout the advantages and disadvantages of each, and how they could be

used in combination with your non-retirement investments to maximize

performance.

Some of the major retirement vehicles include:

• 401(k) – Allows you to invest tax-deferred by applying your

contributions as tax deduction and let you pay taxes upon withdrawal.

Major benefits include easy regular contributions via payroll deductions

and potential company matching contribution.

• Traditional IRA – Allows you to make tax-deferred investments by

applying your contributions as tax deduction.

• Roth IRA – Allows you to invest after-tax dollars and your investment

grows tax-free.

Be sure to take full advantage of all the options available to you.

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Mistake #6: Not Seeking Out Professional Help

When was the last time you had a professional financial planner review your

retirement plan and investments? I am willing to bet that most of you wouldsay NEVER. Yet we are talking about the most important part of your

finances, and possibly the largest savings that you have today.

The funny thing is that most people are less willing to take this type of risk

with other aspects of their lives. For example, they hire professional home

inspectors and appraisers when buying a house. They go to their doctor’s

office at the first sign of a problem. They hire plumbers and electricians

when they encounter problems. Why not hire a professional financialplanner to help you with your retirement plan and investments?

In general, it is a good idea to work with a fee-based CERTIFIED FINANCIAL

PLANNERTM who can help review your investments and provide advice. When

choosing your advisor, be sure to steer clear of "advisors" who act like

salespeople and pitch financial products based on commissions.

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Tips:• Questions to Ask and

Criteria to Use WhenEvaluating a Money

Manager

• Common Mistakes ThatPeople Make WhilePicking a FinancialAdvisor

• Finding an Advisor


http://www.investorwords.com/5452/Certified_Financial_Planner.html


http://www.investorwords.com/tips/1039/questions-to-ask-and-criteria-to-use-when-evaluating-a-money-manager.html




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http://www.investorguide.com/igu-subject-13-finding-an-advisor.html













Mistake #7: Poor Asset Allocation and Diversification

For most investors, proper asset allocation and diversification is the best way

to grow and protect your investments. The best examples are Harvard andYale, who are very-well known for having the most successful endowments

today. Let’s look at Harvard asset allocation and diversification strategy :

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Tip:Always keep a diversifiedportfolio, regardless of current market conditions.

If everything you own ismoving in the samedirection, at the same rate,your portfolio is probablynot well diversified, and youcould stand to reconsideryour asset allocationchoices.

Do you notice the

difference between

Harvard’s and your

investment portfolio?

My guess is that your

portfolio is not nearly as

well-diversified as you

think.

Note: 2010 planned endowment



Mistake #8: Cashing Out of Borrowing Against Your

Retirement Accounts

What is the fastest way to kill your retirement savings? The answer is simple– cash it out and use it today. Remember what you spend today won’t be

there for you to use during your retirement.

Your retirement savings are not meant for your short-term needs. When you

cash out your retirement savings before qualified retirement age, you have

to pay 10% early withdrawal penalty. If you are withdrawing from tax-

deferred accounts such 401(k) or Traditional IRA, you also have to pay taxes

at your current income tax rates. This typically wipe sout 30-40% of yourwithdrawal before you can even get to your money.

The lesser evil of the two is to borrow against your 401(k). Aside from not

letting your money grow, you’ll most likely stop contributing to your

retirement savings while you are repaying your loan. If your company

provides matching contributions, you are giving up free money as well.

Finally, if you lose your job or quit, you have to pay back the loan in full or

risk paying the early withdrawal penalty and taxes.

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Mistake #9: Relying Too Heavily On Social Security Or

Company Pension

Social Security and company pensions are just part of your overallretirement plan. For many people, these income sources are insufficient to

maintain their desired standard of living. Not to mention that our Social

Security system has been under stress for many years. This means that it

could or could not be there when you need the money, or the benefits could

be reduced.

Moreover, your company could go bankrupt and put your pension benefit

under distress. Although the federal government’s Pension Benefit GuarantyCorporation helps protect your interest, there is a maximum limit that may

be lower than what you would otherwise get. Additionally, there are many

rules and exceptions that could reduce your payout.

A strong retirement plan includes income from Social Security and pensions,

but does not rely on them as the primary sources of income.

1010


Tips:• Maximizing Social

Security Benefits

•

Early Social SecurityBenefits and Long LifeSpans

• Studying Up on SocialSecurity


http://www.pbgc.gov/


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Mistake #10: Investing Too Much In Your Company

Stock

Investing in your company stock is possibly one of the worst offense againstdiversification. Talking about putting all your eggs in one basket. Let’s

assume half of your 401(k) value is tied to your company stock. What would

happen if your company goes belly up? Essentially, you lose your job and

half or your 401(k) savings at the same time!

You may think this could not possibly happen to you. Just ask ex-employees

of Lehman Brothers, MCI WorldCom, and Enron – just to name a few.

Unless you have an undying faith in your company, or just like to take

unnecessary risks, it is best to avoid your company stock altogether.

1111


“Loyalty ispowerful. Butwhen it comes

to investing,loyalty shouldhave its limits,especially whenit comes toinvesting in the

stock of thecompany thatyou work for.”

– Anonymous



Mistake #11: Investing In Expensive Or Hot

Investments

Investment expense is about the only variable that you can control when it

comes to investing. And due to compounding, these expenses can really eat

away your gains and leave you with lackluster performance. Here are some

ways to you can reduce your expenses:

• Avoid mutual funds with sales load and redemption fee

• Avoid mutual funds with high expenses and turnover ratio

• Avoid frequent trading – i.e., buys and sells

Another type of expense to avoid is chasing performance. Whatever you do,

please do not invest your portfolio in the hot funds or hot stocks. Hot

investments are those which have done well in the most recent time frames,

unfortunately, this is by far the easiest way to lose money in the market.

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Mistake #12: Not Investing During Retirement

Some people falsely believe that all the hard work is done once they retire.

Unfortunately, that is simply wrong. Just because you retire doesn’t mean

you stop planning for retirement.

With today’s longer life expectancy, you could be spending 25-30 years in

retirement and it is more important than ever to make sure that your

retirement savings last. This means you have to keep and eye on your

investments and spending.

Here are some things to keep in mind:

• You should maintain a conservative withdrawal plan with 25-30 years in

mind.

• You should avoid overly conservative investments early in retirement –

specifically, don’t shift all of your investments into fixed-income. You still

need some stocks and stock mutual funds to stay ahead of inflation.

• Review and update your retirement plan regularly.

1313


“How you investduringretirement is as

critical as howyou invest inpreparing forretirement.”

– Daniel R. Solin



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Free Report Top 12 Retirement Planning Mistakes to Avoid