Everyone at one point or another dreams about their retirement. During retirement you will be able to devote more of your time to what you really want to do and less to what you have to do. Most people are not aware of the retirement pitfalls that honest hard-working Americans fall into that could affect their lifestyles in retirement. For this reason, we have compiled a list of some of the top retirement pitfalls you need to avoid.
-Jeff Dixson President & CEO Northwest Financial & Tax Solutions, Inc
- Not Saving Enough
According to Forbes magazine, America is facing a “retirement crisis”. The crisis stems from millions of Americans having too much of their money at risk in the stock market and too many Americans not saving enough.
You should know the maximum you can contribute to your 401(k) or 403(b) savings accounts, IRA and ROTH IRA’s. You should also know the exceptions for catch-up contributions to these accounts. In order to save more money, consider tax planning, limiting your expenses and sticking to a reasonable budget.
Contact US Tax Centers NW and CPA Guy Schoenborn can speak to you about tax planning. Or try out this free online budgeting tool. Click Here
- Mistiming Social Security Benefits
You could be losing money or not optimizing the amount of money that you could be gaining if you start taking Social Security too early. If you are eligible for Social Security you might be better off waiting to begin taking benefits. According to www.ssa.gov, your retirement age is supposed to be between 65 and 67 years old. If you wait longer you will receive more Social Security benefits each year, although it depends on when you were born. Ultimately it would be best to work with a financial advisor who can help you decide when to start taking those benefits.
To register for a free Social Security optimizer report click here.
- Reacting Nervously to the Market
Most importantly you should consult with your financial advisor to see if, based on your age, financial goals, and risk tolerance you should be investing in the stock market at all. If you currently have your money in investments that are tied to the market, reacting emotionally to the movement of the market isn’t always the best plan. There are reasons to be in and out of the market but if you’re in, make sure you and your financial advisor are following a strategic plan.
Sign up for a complimentary consultation with me. Restrictions apply.
- Not Taking Advantage of a ROTH IRA
ROTH IRA’s can be strategic savings vehicles for many people. A ROTH IRA can help you avoid taking required minimum distributions (RMDs) so that you do not have to use the money you do not need. This money can continue to grow inside of the ROTH IRA and be passed down to your heirs in the future. They are also beneficial if your tax rate in retirement will not be lower than your current tax rate. It is the opposite of a 401(k) in which taxes are deferred. A ROTH IRA allows you to pay taxes at the beginning and take tax-free distributions in the future. An additional benefit is that there are no age limits for contributions to your ROTH IRA.
- Becoming House Rich but Cash Poor
Getting out of debt is a great idea but those people who commit most of their paychecks to paying off the mortgage may be missing the benefit of other retirement savings vehicles such as a 529 savings plans for their children’s college savings and full employer match in a 401(k).
It would make more sense to get rid of high-interest debt such as credit card debt. Interest levels should be compared with the added benefits of savings vehicles. It would also be beneficial to make sure you have at least one year of emergency savings in the bank.
- Not Knowing What Gains You Expect or Your Exit Strategy
You need to know all the details of what you’re putting your hard-earned money into. An investment is an investment because you are swapping immediate use of your money for the hope of a future capital gain. Do you know what that return is going to be? What if someone said you were expecting a 1% return, would you still do it?
What about your exit strategy? Sure, there are long-term investments, but you do not want your money to be out of your hands indefinitely. You want to know when you will be able to either reinvest it or use it! When you work with us we work together so you know where your money is, what it’s doing and why it’s there.
- Investing in Something You Don’t Understand
A lot of people have worked with advisors who use a lot of technical talks. When you work with us, we take the time to explain each investment in simple terms.
- Having Your Money at Risk Close to Retirement
If you are within 5 to 10 years from retirement and your money is at risk, you could fall victim to market volatility that could delay your retirement. Your retirement nest egg should produce income for you in retirement but if it takes a hit, that nest egg will produce less income. Less income means a change in lifestyle. For some people, change of income can be the difference between thriving or surviving in retirement. That is why you need to know how much of your money is at risk and you cannot have it at high risk if you are close or in retirement.
Listen to Jeff Dixson: 5 Headlines that could Affect your Retirement
Contact Northwest Financial & Tax Solutions, Inc (non-affiliate)