COMMON MISTAKES PEOPLE MAKE WITH THEIR RETIREMENT MONEY

Avoid these pitfalls to safeguard your retirement future

It's no time to gamble with your hard-earned money when you're approaching retirement, or even if you've just landed your first job and are starting to think about saving. Investing poorly and without due diligence or paying unnecessary fees and costs can derail your retirement, or at least make it less comfortable than it could be. 

You can avoid some common mistakes with a little planning, whether you're in your 60s or your 20s. 

01 Investing in Things You Don't Know About

Steer clear of new investment schemes with which you're unfamiliar. This includes that free seminar with a dinner thrown in, which could be a fraud or a Ponzi scheme. Don't trust anyone who tries to pressure you into handing over your retirement money. Any reputable financial adviser understands hesitancy and reluctance. 

Take the time to learn as much as you can first, and then invest in new areas in small steps, a little money at a time. 

02 Betting on Stocks

Don't invest a large portion of your valuable retirement holdings in a stock that's supposed be a can't-miss opportunity or the next big thing. It's too easy to lose your shirt and your retirement future, or to not realize the full potential of your investment dollars. A lot more people would be billionaires if beating the market were that easy. 

Myriad smart people place trades every day, and for each trade, only half can be right. Just because you're talented in your own chosen field, that doesn't translate into market timing skill. Investing is a process, and that process has a name: asset allocation. The process only works if you use it. 

As exciting as the thought of big gains can be, think of such an approach as going to Vegas and betting your retirement money on red or black. Again, do it with small amounts of money if you like the thrill, not with the bulk of your retirement funds. Moderation is key. 

03 Neglecting to Take Full Advantage of Your Employer's Savings Plan

That 401(k) your employer offers is made up at least partially of "free" money. It might seem tame to your way of thinking, particularly if you prefer playing the market, and you might think you can earn more on your own. But consider all you'd be giving up.

Contributions to your 401(k) are a tax-free was to invest in your future. That's not the case if you take a portion of your after-tax income and invest in stocks. Yes, you'll be taxed when you later take distributions, but presumably you'll be in a lower tax bracket then.

It's especially foolhardy to ignore the potential of that 401(k) if your employer is matching your contributions. Those contributions are the equivalent of income. Passing them up is like telling your employer you'll work for less money. 

With limits to how much you can contribute each year, a 401(k) should not be your only retirement plan. 

04 Making Risky Loans with Too Much of Your Net Worth

Private loans can pay 10 percent-plus yields, but they also come with serious risk. Don't put all your retirement eggs in one basket if you're going to venture into this volatile field. The company making the loans could go bankrupt, and you could lose more—if not all—of your hard-earned retirement dollars. 

Many types of investments offer high yields. Private loans are just one of them. Diversify if you're going to go with a high-yield strategy. Don't put all your retirement money in one strategy. Risky investments should compose only small portions of your retirement money.

By the same token, don't overload on safe investments, either. "Safe" can translate to "risky" over the long haul because safe investments typically don't earn as much. You could end up short-changing yourself if you lean too far in this direction as well—for example, if inflation completely eats away at your interest-rate return.

05 Putting Too Much Money into Real Estate Deals

Some real estate deals promise high-percentage returns, but they're not liquid. If a real estate project goes south, you can do little but ride it out until the property hopefully sells and you get some money back. You could end up with almost no income and an asset that remains frozen until the real estate market recovers or the land is sold or developed.

Real estate can be a good addition to a retirement portfolio when you're smart about it, but it's not so smart to put a lot of money in a no liquid investment over which you have so little control. Consider investing in a real estate investment trust (REIT) instead, or purchasing an investment property with a modest operating account that can take care of problems when they arise.

06 Overlooking Fees and Costs

The fees and costs associated with maintaining your investments might not seem like such a big deal when you're in your 30s, especially if they're just a minuscule percentage. But they can really add up over the course of three or four decades.

Compare fees at the beginning and keep an eye on them as your investments grow. That 1 percent will be a lot more in terms of dollars and cents several years from now, particularly when you consider interest and dividends compounding on a lesser balance. 

Depending on your investment vehicle, it might make sense to change plans if your fees and costs skyrocket or if you realize they're higher than you thought. But it's always better to have a firm idea of costs right out of the starting gate. 

Brokerages don't always advertise their fees, so be careful. You might have to ask repeatedly to get the answers you need, but your persistence can actually save you tens of thousands of dollars down the road. 

07 Being Unrealistic About Your Financial Needs

Individuals frequently err when it comes to guesstimating how much they'll need annually in retirement. Underestimating isn't always the problem; many folks think they'll need more than they actually will.

You might be just making ends meet on $4,200 a month now, but odds are that you won't need that much once you retire. Look at your current budget and cross out the items you won't be spending money on when you stop working. Commuting costs and lunches on the go come to mind; not to mention the portion of that $4,200 that you've been funnelling to retirement savings. Moreover, you'll likely fall into a lower tax bracket. That's fewer dollars that you'll have to give to Uncle Sam. 

For more and more people, retirement doesn't mean completely stopping working. Many retirees are bored when they leave the workforce. You may not want to continue that 50- to 60-hour grind in your 70s, but you might decide to pick up a part-time job just to get out of the house for a few hours a week. Whatever income you earn means using your savings a little less. 

Having more saved than you need is always better, but for a variety of reasons, you might not need as much as you think you will. 

The Bottom Line

Your retirement money isn't for gambling. Those funds must provide you with a reliable and consistent income stream. Take the time to lay out an investment plan and be serious about it before you invest in something new. Otherwise, you'll have no one but yourself to blame for your losses—and the loss of your retirement future.

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