7 Mistakes You May Be Making With Your Retirement Savings

  • Saving for retirement is a big financial goal for most people, so you’ll want to avoid mistakes.
  • Not rebalancing your portfolio, investing irrationally, and ignoring 401(k) matches can hurt you.
  • Other mistakes include not saving enough, factoring in all of your retirement expenses, and more.
  • Read more from Personal Finance Insider.

Retirement is one of your biggest financial goals, and while many of us have years (or decades) left, the small decisions you make now can have a big impact on your golden years.

According to the Federal Reserve, 44% of non-retired adults believe they are not on track to retire. One in four non-retired adults say they have no retirement savings.

There are some common mistakes savers make that can quickly derail your savings and make it difficult to get back on track. Avoiding these mistakes early on can save you in the long run.

1. You are not rebalancing your portfolio over time

Rebalancing your portfolio can help ensure that it is diversified and on track to meet your goals. It also helps mitigate market swings. Most savers will switch their investments to more conservative options as they get closer to retirement age.

You should rebalance periodically, about once a year, and only make modest adjustments to your plan. If you have multiple retirement accounts, it’s important to consider allocating your entire portfolio, not just each individual account.

Want a more practical approach? Many 401(k) plans give you the option to invest in a target date fund, helping you automate investing through a fund that adjusts as you approach retirement age.

2. You are choosing your own investment strategy

Some savers manage their retirement investment strategy themselves, putting their savings in a taxable brokerage account, which can mean lower fees, a broader selection of investments and potentially higher returns.

But actively managing your retirement funds is riskier and more time consuming. We often invest irrationally, and the last thing you want is for your behavioral biases to get in the way of your retirement. Not to mention, you won’t get the tax deferral and employer matching benefits that 401(k)s have if you go it alone.

3. You are ignoring the company party

If your employer offers a 401(k) match, take advantage of it! Sign up and make sure you’re contributing at least up to the amount of the counterpart; after all, it is free money.

For example, if your employer has a 5% matching contribution, be sure to contribute at least 5% of your income, as long as you are below the total contribution limits.

4. You change jobs too often

I’m not a professional advisor, so I can’t tell you if staying in a certain job is good for your career. But I can tell you that changing jobs many times over the years can mean leaving potential retirement savings behind.

Many employers offer contributions to their 401(k) plan, profit-sharing plan, or stock options. However, there is a catch: the majority must be “vested” for a certain number of years before you get full ownership of the money. Most award schedules range from three to five years.

Before you send out the two-week notice, be sure to check what your vesting schedule is. If you’re close to your deadline, you may want to consider whether it’s worth changing jobs leaving that money behind.

If you change jobs, don’t forget to transfer your old savings plan to your new one. Switching your old 401(k) to another plan could save you money in the long run with lower fees. Sometimes you’ll also have a broader selection of investments in your new plan.

5. You are forgetting about tax diversification

Taxes affect how much money you can keep in retirement, and tax diversification is a strategy to help your money last in retirement. Your retirement accounts contain tax-deferred, taxable and tax-free funds. Creating a strategy that takes into account the various tax treatments of your accounts can help you save money and give you more flexibility in how you access your savings.

A good example of this is combining your pre-tax 401(k) savings, which are taxed when you withdraw them, with Roth contributions, which are tax-free in retirement.

6. You are not considering all your retirement expenses

We would all love to stay healthy for the rest of our lives. But the reality is that you may face a healthcare-related expense or even need long-term care, costs that are vastly underestimated. Some models estimate that a couple retiring at age 65 will need between $197,000 and $285,000 just for health care expenses.

While it can be difficult to predict what your medical needs will be in retirement, estimating your costs and making a plan can help you avoid negative financial outcomes. I also recommend looking into long-term care insurance to help cover future costs.

7. You are not saving enough

The biggest mistake I see others make when saving for retirement? That they are not saving enough, or at all!

Saving for retirement takes years, and starting early gives you more time to set aside money, make a plan, and take advantage of compound interest. The longer you wait to save, the more daunting and stressful it can seem.

Keep in mind that these are mistakes many people make when saving for retirement – ​​I’ve fallen for it before me! But having a clear plan and sticking to it will help you stay committed to his goal and ensure that his golden years are truly golden.

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