Avoid These 3 Retirement Savings Mistakes
Filed under: Retirement
Worried about your retirement savings strategy? If so, you’re not alone. According to a recent study from Gallup, retirement is a pressing concern for many Americans. The study found that 54 percent of respondents were worried that they won’t have enough money to fund their retirement.1
Those concerns may be valid. A study from the Economic Policy Institute found that the average American adult has less than $100,000 saved for retirement.2 While that’s a sizable sum, it’s far short of the amount many retirees need to live comfortably.
Fortunately, you can boost your savings by avoiding a few common retirement planning mistakes. Below are three mistakes that many Americans make when saving for retirement. Do any of these sound familiar? If so, it may be time to reassess your plan and make changes to your strategy.
Contributing less than the maximum to your qualified accounts.
If you’re like many Americans, you use a qualified account such as an IRA or 401(k) as a retirement savings vehicle. These accounts are popular because of their tax advantages. In most cases you can make pretax contributions. Your growth is also tax-deferred as long as the funds stay in the account. That tax deferral could help you grow your funds more than you would in a similar taxable account.
You can maximize the power of tax deferral by contributing as much as possible to your qualified accounts. In 2018 you can contribute up to $5,500 to an IRA, plus an additional $1,000 if you are over age 50. The contribution limit for a 401(k) is $18,000, with an additional $6,000 allowed for those age 50 and older.3
Consider increasing your contributions to your 401(k) and IRA. If you can’t afford a sizable increase all at once, you can always gradually raise your contributions over time. If you increase your contributions gradually, you may not notice a hit to your budget.
Not using a diversified strategy.
Diversification is a key component in any sound investment strategy. Simply put, diversification is the idea that you should strategically allocate your assets across many different asset classes. That reduces your exposure to risk related to specific assets.
Your allocation should be based on your unique needs, goals and risk tolerance. If you are approaching retirement or have a low tolerance for risk, you may weight your allocation toward assets that have low historical volatility. If you have greater tolerance for risk, you might focus on an approach that could have high volatility but also high potential returns.
Unfortunately, many people get caught up in the latest news or trends. They may overweight their investments toward assets that have performed well in recent years. The problem with that approach is that it also exposes those individuals to excessive risk. A diversified allocation aligned with your goals can help you manage your risk exposure.
Focusing on short-term volatility rather than long-term objectives.
Finally, it’s important to remember that your retirement investment strategy is meant to fund long-term objectives. It’s not easy to watch your assets decline in value during a market downturn. However, market downturns are often temporary. If you make a rash decision and abandon your long-term strategy, you could suffer more damage than you would by simply sticking to your plan.
If you have many years until retirement, try not to focus on the short-term ups and downs of the market. If you’re approaching retirement, short-term volatility may be more important to consider. Either way, a financial professional can help you focus on what’s most important and make sound long-term decisions.
Ready to implement your retirement savings plan? Let’s talk about it. Contact us at Ambrose Financial & Insurance Services. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
1http://news.gallup.com/poll/210890/americans-financial-anxieties-ease-2017.aspx
3https://www.cbsnews.com/news/irs-allows-higher-retirement-savings-account-limits-in-2018/
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17511 – 2018/3/26
