Avoiding the Top 10 Retirement Mistakes
1. Cashing out of 401(k) or an IRA.
Due to federal income taxes and possible early withdrawal penalties, this is literally one of the most expensive retirement mistakes you can make. Let's say you're in the 35 percent tax bracket. If you withdraw $10,000 from a 401(k) you will get hit with a penalty of $1,000 for withdrawals before age 59˝. Plus, you'll pay federal income taxes of $3,500. And on top of that, you'll pay state taxes. Taking your company pension monies as a lump sum cash distribution will result in the same problems.
To avoid this mistake, have the money sent directly to your IRA. You can then draw money from your IRA as you need it and defer the taxes on the rest.
2. Underestimating your income needs.
The old rule of thumb that suggests you'll need 70 percent of your income after you stop working is passé. Today people are living longer, healthier and more active lives. Life is expensive, and chances are good you'll need more than you think to live on. Complete a detailed budget to get an idea how much money you'll need for your retirement years.
3. Not anticipating inflation.
Inflation raises prices and effectively reduces the buying power of your money. If your investments are not returning more than the rate of inflation, your nest egg is actually shrinking in value. Stocks are one of the best weapons for fighting the effects of inflation because they have a strong track record for beating inflation.
4. Drawing your retirement income too soon.
Some retirees misjudge the longevity of their retirement monies and go on a spending spree as soon as they retire. Postpone withdrawing money as long as you can. The longer you can build up your retirement assets, the better.
5. Investing for the short term.
How long will you live? No one can be sure, but it's very likely you will live 20 or 30 years after retirement. So, it is critical that a portion of your retirement monies be invested in growth-oriented investments such as stock-based mutual funds.
6. You're not diversified.
To minimize risk, maximize diversification of your investments. Maintain a combination of stocks, bonds and money market funds or assemble a portfolio of mutual funds that represent different market segments. This is best accomplished by seeking advice from an expert who can create an asset allocation model that represents your unique needs.
7. Overexposure to one stock.
Too many times people become overweighed in one stock because they are overconfident in its prospects, don't want to sell at a loss or are simply loyal because they worked for the company. All of these reasons are emotional and often dangerous. Don't forget about the Enron tragedy and bet the security of your retirement on the fate of just a few companies.
8. Relying on Medicaid for long-term care.
The best way to protect your retirement savings from long-term medical care costs is to purchase a good long-term care insurance policy. Medicaid nursing-home coverage does not kick in until your assets are reduced to poverty level.
9. Establishing a plan without follow-up.
As life changes and investment markets fluctuate, your financial plan should adapt. A good financial plan is an ongoing process. Schedule periodic checkups with a
In addition, our alliance with to prevent future financial problems and make certain your goals are continuously being met.
10. Not having an estate or end of life plan
At the very least, every retiree should have in place a recent will, health care proxy, power of attorney and personal financial diary. Otherwise you will be leaving your family, wishes, hopes and dreams exposed to a plethora of potential problems. |
