Check out these seven ways to damage your retirement planning:
1. Not enough retirement savings.
Most Americans have never attempted to calculate how much they need to save for retirement. Pensions hire actuaries to do these calculations. No matter what your investment returns, if you don’t save enough you won’t have enough.
2. Retirement saving based on employer match.
Many investors determine how much to save based on r employers match. No match no investment. 3% match then 3% contribution. Not saving only hurts you. The 401k rules allow you to save up to $17,500 ($22,500 if you are 50 plus). Given that an IRA only allows you to save $5000, having a 401k increases the retirement savings piggybank significantly.
3. Investing based on age alone.
One of the popular ways to invest for retirement is based on age or when you plan on retiring. It does not guarantee that you will have enough money. It does not take into account any savings you currently have. It does not take into account whether you will receive social security or pensions. Those factors may actually mean that you can save less for retirement and more for goals like your kid’s education or a bigger house.
4. Not saving for retirement soon enough.
Many people put off saving for retirement. This happens when that goal seems so far away. Saving early allows the power of compounding interest work in your favor. If you wait, you actually have to save more or hope for better investment returns. Higher investment returns usually come with increased investment risk which may make you queasy.
5. Trusting the wrong financial advisor.
Bernie Madoff gave client’s what they wanted for returns. They didn’t know at what risk. While every advisor is not a crook, every advisor does not have the same credentials. Many pick their advisor based on the firm they work for. Many firms compensate their advisor based on how much they make their firm, not how much they make for you. Ask you advisor how they are compensated? What happens if you have a complaint? Whether they legally must work in your best interest? Then ask them to show you where you can find these answers in writing.
6. Paying hidden investment fees.
Most believe when they invest into an IRA or 401(k) that all of their money is being invested. Not true. The advisor gets paid and the firm they represent. The portfolio manager, the research team and the firm they work for get paid. The firms that handle the buying and selling of the investment products get paid. Cutting out the advisor may increase your fees not decrease them. It is important to know what you pay. If you have a 401(k) you should be receiving a document that explains the fees that you are paying. All things being equal when comparing investments the lowest cost one usually provides better returns.
7. Trading too often.
Daniel Kahneman, Nobel Prize winner in Economics talks about the men and our problems with trading too much. It sounds good to say that we are actively watching the market and will trade when we see opportunity, it is costly. You may pay to buy and to sell. There is no guarantee that what you are buying into will be better than what you are leaving. If your retirement savings is not in a tax deferred IRA, 401(k), etc. this trading will cause you to pay more in taxes. Taxes become a not so hidden fee in April.
If you find that any of these seven is damaging your retirement, contact us for help developing a strategy to repair it.
(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
