Beware. There are real threats lurking out there, potentially jeopardizing your retirement saving efforts. A market crash? The next Enron? No. I'm talking about things that are a little closer to home. But happily, you can do something about them.
Here are three threats that may get the best of your retirement savings if you're not on the lookout.
Threat #1: You
You are the single largest threat to your own retirement savings because you're the one in charge. You could be contributing too little to reach your retirement goals. You could be investing without a plan and letting your emotions drive your investing decisions, which can lead to all sorts of trouble. You could be leaving your 401(k) floundering without regularly-scheduled maintenance.
The solution: Determine how much money you'll need in retirement so that you can calculate the amount you need to contribute monthly to reach your goal — and if you can't save that much right now, increase your monthly contributions gradually until you get there. Create an investing plan to keep you on track when you're feeling emotionally charged. And keep your 401(k) account on track by rebalancing it quarterly.
Threat #2: Your kids
Evolution has programmed our species to protect our offspring above ourselves, but there is one area where you can allow logic to overrule instinct: your children have access to a strong, well-developed system of grants, loans, work-study programs and scholarships, so don't give their college savings higher priority than your own retirement savings. Retirement doesn't offer the same opportunities for financing that college does.
The solution: Prioritize yourself — contribute the full amount needed to get you to the retirement you desire, and then save any extra money in a separate investment account for your kids. You can teach them fiscal responsibility by having them share the burden of college tuition. When you're 75 and don't require financial assistance from your children, they'll be grateful.
Threat #3: Lack of emergency savings
We've all likely heard someone say, "I guess I could dip into my 401(k)." But that doesn't make it a good idea. Take money out of your account and you'll probably never make up for the earnings potential that you'll lose. But there may come a time when you're going to need to dip into something. During a life emergency, the thing that stands between you and an obliterated 401(k) account is an emergency savings fund.
The solution: While you're working your way toward your retirement goals each month, simultaneously work your way toward peace of mind by building an emergency savings account. You should have at least three months' salary saved to see you through an unexpected crisis. So when your roof caves in or your car mysteriously stops working or you lose your job, you're not tempted to turn to your 401(k) account.
Scott Holsopple is the president of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.