Pursuing your retirement dreams is challenging enough without making some common and very avoidable mistakes. Here are eight big mistakes to steer clear of, if possible.
- No Strategy: Yes, the biggest mistake is having no strategy at all. Retirements can last 30 years or longer. Without a strategy, you may have no goals, leaving you no way of knowing how you’ll get there—and if you’ve even arrived. Creating a strategy may increase your potential for success before and after retirement.
- Frequent Trading: Chasing “hot” investments often leads to despair. Create an asset allocation strategy that is properly diversified to reflect your objectives, risk tolerance, and time horizon, then make adjustments based on changes in your personal situation, not due to market ups and downs.1
- No tax planning: Taxes will likely be your biggest expense in retirement. It needs to be planned for. If you are still working, not participating in your employer’s 401(k) may be a mistake, especially when you’re passing up free money in the form of employer-matching contributions.2 For those newly retired, Roth conversions may lower your lifetime tax bill. Managing your taxes to avoid surprises in Medicare IRMAA surcharges and other taxes can save you a lot of money as well.
- Prioritizing College Funding over Retirement: Your kids’ college education is important, but you may not want to sacrifice your retirement for it. Remember, you can get loans and grants for college, but you can’t for your retirement.
- Overlooking Healthcare Costs: If you plan to retire before 65, you should evaluate your healthcare options prior to becoming Medicare eligible. Long-term care may be an expense that can undermine your financial strategy for retirement as well if you don’t prepare for it.
- Not Adjusting Your Investment Approach for Retirement: The last thing your retirement portfolio can afford is a sharp fall in stock prices when you’re ready to stop working. This can lead to panic selling stocks when prices are depressed.3 It is also possible to be too conservatively invested, particularly with the upsurge in inflation. It is important to think through these scenarios before retiring so that once you retire, you can sleep at night, regardless of what is happening to your nest egg.
- Retiring with Too Much Debt: If too much debt is bad when you’re making money, it can be deadly when you’re living in retirement. Consider managing or reducing your debt level before you retire.
- It’s Not Only About Money: Above all, a rewarding retirement requires good health, so maintain a healthy diet, exercise regularly, stay socially involved, and remain intellectually active.
1. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are approaches to help manage investment risk. Asset allocation and diversification do not guarantee against investment loss. Past performance does not guarantee future results.
2. Under the SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73 (75 for those born in 1960 or after). Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty."
3. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss. Past performance does not guarantee future results.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax, investment, or legal advice. It may not be used to avoid any federal tax penalties. Please consult legal, investment or tax professionals for specific information regarding your situation. Mayfair Financial and FMG Suite developed and produced this material to provide information on a topic of interest. FMG is not affiliated with the named state-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.