6 Retirement Planning Pitfalls to Avoid

6 Retirement Planning Pitfalls to Avoid

By Cathy DeWitt Dunn

For anyone who is preparing for retirement, maybe you’re not sure where to begin, or you made a budget a few years ago and haven’t followed up on it. Use these key areas to help you get on track with your retirement goals and to avoid falling into retirement planning pitfalls.

1. Not saving enough: For anyone who has been working at their job for a number of years, one thing you want to do is maximize how much you set aside in your 401(k)s, as well as your individual retirement account, (IRA). You can also invest in a 403b, 457, or even a SEP-IRA. Because the government lets you contribute a little bit more money every year, you want to make sure you keep up on the maximum amount allowed so you can increase your savings accordingly. For 2015, you can put away up to $18,000 into your 401k. Keep in mind, too, that many employers offer 401k matching so it can really pay to save for retirement.

2. Spending Too Much on Junk: If you’re concerned that you’re not going to have enough to live on if you step up your retirement savings, the best way to addresses this is to look at your monthly bills. You want to:

  • decrease your credit card debt
  • cut back on expensive cable and/or phone bills
  • cut down on any extra monthly spending that you do

The money that you start to save right away can be the extra income you need to make up for what you’re contributing to your 401(k) and your IRA.

3. Not Creating a Budget and Not Cutting Your Fees: Because there can sometimes be hidden fees that you may not be aware of that you’re paying for each month, you want to write out all of your bills and start a budget. You then want to examine each bill’s line item of charges to uncover any hidden fees for services you’re not using. For example, many vehicle insurance plans offer roadside assistance…for a fee. However, you may also be paying for a roadside assistance plan through your mobile phone. If you know what you’re dealing with, you can simply cancel the most expensive roadside assistance plan…and still be covered while saving money. And, most importantly, make sure you’re not paying late fees. Even if a late fee is $5 a month for each bill, this can quickly add up to about $500 a year or more. Also try to get better rates on your credit cards and cheaper phone plans. All you have to do is ask. You’d be surprised at what a company will offer to help keep your valued business.

4. Overspending: You also want to ensure that you’re not spending excessive fees on things like movies. Because there are so many ways to stream content for movies and get free TV, it can pay to look into this. Saving for retirement is all about being smart and cutting back now so you don’t have to cut back later on. Look into Netflix, Amazon, and Hulu for movies. Cut the cable cord and consider investing in a Roku or similar device, which is a streaming player that can help you to get the same movies. A Roku is about $60 and there’s no monthly fee. Even if you add in Netflix and Hulu, that’s about $16 a month.

That also might mean you want to stop throwing your credit cards around like cash. The problem is while you might think you are the life of the party, you’re also getting hit with all of the bills and all of the potential fees. If you can stop using your cards and carry cash, you’ll actually spend less.

5. Tapping into Your 401k: Some people think that a 401(k) means you have an extra reserve of cash, but you have to remember that if you take any money out prior to the age of 59 1/2, you will have to pay the Internal Revenue Service a 10% penalty fee. You will also have to pay tax on that income. Once you’ve invested money in your 401(k), keep that money in your 401(k).

6. Not Re-balancing Your Portfolio Regularly: According to Investopedia, portfolio re-balancing “is the process of buying and selling portions of your portfolio in order to set the weight of each asset class back to its original state.” Re-balancing makes sense to do every now and then because different investments invariably perform differently, month after month, year after year. Some go up, some go down, which changes your original portfolio allocations. Allocations are made according to your investment goals and risk tolerances, so it’s also important to take another look if your life circumstances change. For example, if you get a new job or promotion, you may be able to take more risk and you’ll want to adjust your allocations accordingly.

Lastly, it’s important to work with an expert to help make sure you’ll be set for a secure future when you’re ready to retire. A retirement income planning specialist is a good place to start and can help you make the most out of your nest egg including your IRA, your 401(k), pensions, Social Security, your portfolio, and estate planning needs.


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