Retirement planning involves a series of decisions that you’ll make throughout your working life as you save. Some of those decisions will help you reach your goals, and others you’ll end up regretting. Matt Allgeyer, Financial Planner at Wamhoff Financial Planning & Accounting, shares the top five most common mistakes investors make.
1. Planning to Work Well Past Retirement Age
• When preparing financial plans, many investors either assume they can work indefinitely because they want to; or they realize they have to work into their 70s because they can’t afford to retire.
• It’s dangerous to plan to work that long. Health issues can arise, making you unable to work. Your job may be eliminated, or you may not be able to find work at an older age.
• Therefore, base your retirement plan on not working past 65.
2. Delaying Saving for Retirement
• Younger workers may not feel they have enough money, and have plenty of time to save later.
• Or, parents may focus on spending on their children’s education, helping them buy a home, etc.
• All of these scenarios are mistakes. The younger you start saving, and the more consistently you save, the more time you have to take advantage of compounding interest, which is very powerful.
• Your kids can borrow for school or a home, you can’t borrow your way through retirement.
3. Borrowing from your 401(k)
• Many people feel that if they borrow from their 401(k), they’re borrowing from themselves, and paying themselves back.
• That money must be paid back within 60 days, or else interest and taxes apply.
• There’s also the double whammy here – you’re probably not contributing if you’ve taken a loan, so you’re missing out on the growth that money could be experiencing.
• Bottom line – Don’t do it. Borrowing from your 401(k) should be an absolute last resort.
4. Avoiding the Stock Market
• We get it. It was scary to see the stock market tank in 2008. Yes, there is risk involved.
• However, over the long term, investors are able to rebound from those losses. If you’re consistently contributing to your 401(k), when the market is down your contributions will result in the purchase of more because the price is down.
• When the market goes back up, those stocks, which you now own more of, will also be worth more. At those times we look at rebalancing.
5. Taking Social Security Early
• You can claim social security at age 62, but should you?
• Waiting until the full retirement age, which is currently 66, will allow you to receive 100% of your benefit. If you wait until age 70, the benefits increase by 32% (8% annually for 4 years).
• If you can afford to wait, it may be a wise decision to do so. Once you claim, you can’t go back.