When it comes to saving for retirement, many people take a set-it-and-forget-it approach. But not paying attention to what is going on in your 401(k) and IRA accounts could cause you to miss valuable savings opportunities. Avoid these seven mistakes:
- Not getting your match. If your employer matches contributions to your 401(k) plans, you should invest at least enough to get that match. Otherwise, you are essentially leaving money on the table.
- Not maximizing your contributions. With so many immediate financial needs, investing for a long-term goal like retirement can be hard to prioritize. While you may not be able save up to your 401(k) contribution limits (for most people, that $18,000 in 2015 plus an additional $6,000 catch-up contribution for those over age 50), you should save as much as you are able. If there’s any extra room in your budget, consider dedicating that money to retirement.
- Investing too conservatively. Investing in stocks can be scary, especially if you’ve never done so before. But keeping all your money in safe investments like cash or CDs is actually a risk in and of itself. Low returns plus inflation (which averages 3% a year) means that money in supposedly safe investments will actually be worth less over time. To increase your chances of enjoying a secure retirement, you need to take some risk with your savings.
- Not reviewing your investment allocation regularly. Your investment allocation should change as you age. The investments you selected at age 30 may no longer be appropriate at age 50. When you’re young and have a lot of time before retirement, you can likely afford to invest aggressively in stocks, which are riskier but come with the possibility of higher returns, since you have time to weather the ups and downs of the market. As you get older, you can reduce the risk in your portfolio to protect your savings.
- Missing out on catch-up contributions. Once you turn 50, you can start making catch-up contributions to your 401(k), 403(b), or 457(b) in 2015. In addition, you can contribute an additional $1,000 to your IRA every year if you’re older than 50.
- Forgetting about old retirement accounts. When you switch jobs, you may leave your 401(k) plan savings behind with your old employer’s plan. While that money is still yours, it’s easy to forget about. And if you end up with several stray retirement accounts, you may end up in a situation where your assets aren’t really helping you achieve your goals. Consolidating your retirement accounts in one place means everything will be in one place, helping you and your advisor make sure you’re on track to achieve your goals.
- Taking a do-it-yourself approach to planning. Some people may have the knowledge, skill, and emotional fortitude to manage retirement planning on their own. But many more need the help of a financial professional to achieve their retirement goals. People who take a do-it-yourself approach to retirement planning may underestimate how much they need to save, make emotional investing decisions, or choose investments that are inappropriate for their goals. Those seemingly simple mistakes can jeopardize your retirement. Please call if you’d like to discuss this in more detail.