Common Retirement Investing Mistakes To Avoid

Planning to retire? Have all your ducks in a row? Know where your retirement income’s going to come from? Great! But don’t make some basic mistakes or you may find yourself working longer or living on a reduced income.

Retirement income is like a three legged stool. Take one of the legs away and you fall over.

Retirement Planning Mistakes

The first leg of the stool is Social Security. Depending on your income goals, do it right and you can cover part of your retirement income from this source. Do it wrong and you can leave lots of money on the table.

The second leg is a pension. Many people have guaranteed pensions provided by their employer.  But these are gradually disappearing, replaced by 401(k) and similar plans known as “defined contribution” plans. If you don’t have a pension but want a second guaranteed lifetime income you can look into annuities that pay you a fixed income for life.

The third leg of the stool is your investment portfolio. This is where most people make mistakes and it can have a big impact in your retirement.

According to Forbes, the single biggest mistake that people make is “winging it.”

Operating without a financial plan and — maybe worse — having no idea how much they need to retire on ranks first because it can put investors years behind schedule.

Mistake number one is leaving “orphan” 401(k) plans behind as you change jobs. These plans often represent a large part of a typical retiree’s investment assets. Our advice for people who move from one company to another is to roll their 401 (k) assets into an IRA. This gives you much more flexibility and many more investment choices, often at a lower cost than the ones you have in the typical 401(k).

Mistake number two is trying to time the market. Many people are tempted to jump in and out of the market based on nothing but TV talking heads, rumors, or their guess about what the market is going to do in the near future. Timing the market is almost always counter-productive. Instead, create a well balanced portfolio that can weather market volatility and stick with it.

Mistake number three is “set it and forget it.” The biggest factor influencing portfolio returns is asset allocation. And the one thing you can be sure of is that over time your asset allocation will change. You need to rebalance your portfolio to insure that your portfolio does not becoming more aggressive than you realize. If it does, you could find yourself facing a major loss just as you’re ready to retire. Rebalancing lets you “buy low and sell high,” something that everyone wants to do.

Mistake number four is to assume that the planning process ends with your retirement. The typical retiree will live another 25 year after reaching retirement age. To maintain you purchasing power your money continues to have to work hard for you. Otherwise inflation and medical expenses are going to deplete your portfolio and reduce your standard of living. Retirement plans should assume that you will live to at least 90, perhaps to 100.

Other investing mistakes to avoid:

• Starting too late.  Market gyrations, fund fees and other costs cost you, but nothing compares to the cost of getting a late start on saving and investing for retirement
• Heading into retirement with expensive mortgages,
• Overlooking the free money from employer matching funds for 401(k) plans,
• Failing to consolidate their accounts — increasing the likelihood that they’ll lose retirement money through forgetfulness, poor record keeping or clumsy tax planning.
• The tendency among investors to put their children’s financial needs before their own. In other words, they’ll sacrifice their well-being in retirement for their kids’ education, living and sometimes even lifestyle expectations. In truth, not becoming a financial burden in old age is the most generous thing parents can do for their kids.

Retirement planning is complicated and is best done with the help of an expert. Reach out through our contact page and feel free to give us a call. We wrote the book on retirement and estate planning.