With all the retirement advice available today, you would think that we investors wouldn't make mistakes. But investment errors happen a lot more than they should. Here are some common mistakes made in retirement planning and how to avoid them.
1. Paying too many taxes. There are several tax-advantaged ways to save for retirement. You should be taking advantage of retirement accounts such as a 401(k) and a Roth IRA to help you minimize taxes, both now and in the future. If you're not investing for retirement within a tax advantaged account, why not? There are few reasons you shouldn't shield a significant amount of your funds from taxes in these types of accounts.
2. Not having an end game. Do you know what total savings amount or withdrawal amount you are trying to achieve for retirement? You need to figure out when you'll begin accessing those funds and the tax implications of those withdrawals. Visit a flat fee-only certified financial planner (someone who won't try and push a product on you for a commission) and have your portfolio reviewed to see where you'll end up based on your current and expected contribution levels. Ask about the most efficient ways to withdraw your funds.
3. Relying too much on others. Don’t count on the government, an employer, or someone else to help you out in retirement. You have the power to do your own research, invest without the need for an expensive broker, and create a comfortable retirement. You can pick your own investment options and reduce the expenses involved. Take control and make sure you are taking care of yourself for retirement.
4. Not properly allocating your assets. How you have your money invested should be a product of your risk tolerance and your age. Properly allocating your assets means putting your money in a variety of different types of investments. There are plenty of asset allocation models available today for you to review and design your portfolio around.
5. Paying too many fees. Investing for retirement can get expensive. Investment firms are constantly thinking of new products to offer potential investors which often come with a hefty price tag. In general, the more managed a particular investment is, the more expensive it's going to be. Be sure you know what fees you're paying with your investments and always be on the lookout for less expensive investments that will give you the same result. If you're actively trading your retirement investments, consider a low-cost online stock broker for cheap stock trading.
6. Not paying attention. You should try and review your retirement portfolio at least annually to make sure you are still headed in the right direction. Consider moving funds in an old 401(k) to a more flexible account. You may need to realign your investments to get the proper allocation or to reduce fees.
7. Not starting now. If you haven't started saving for retirement, why not? Even a small amount, contributed regularly when you're young is better than nothing. Make your retirement goals a priority and don't stop making contributions. Don't let this down economy or the loss of company matching contributions hold you back.
Phil Taylor is the author of the popular 52 Ways to Make Extra Money. Find out how to save more money and get the latest news on the best online savings accounts and the best online stock brokers at his blog, PT Money: Personal Finance.