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The Biggest Retirement Investing Mistakes

Bankrate.com recently published a list of the seven biggest retirement investing mistakes and advice on how to avoid them. Those mistakes are:

 

  1. Not Taking Full Advantage of Tax Breaks: Tax-favorable accounts, including 401(k) plans and individual retirement accounts IRAs, allow savings to grow tax-free, yet many workers do not take advantage of them.
  2. Not Saving Enough, or at All: Saving 9% of one’s salary (including employer matching contributions) may not be enough, especially for those starting late or having gaps in their employment. Plus, more than 80% of those surveyed by TIAA-CREF said they weren’t contributing to an IRA.
  3. High Fees in Retirement Plans and Investments: High fees can negate any outperformance, so it is important for savers to be aware of them and to look for low-cost alternatives.
  4. Focusing on Only One Risk: Nearly four in 10 people surveyed by Franklin Templeton believe they can get by without investing in stocks. Yet, avoiding stocks increases longevity risk, the risk of outliving one’s savings.
  5. Investing Aimlessly: It is not uncommon for investors to get aggressive when the market is going up, only to cut back on their holdings when stock prices fall. Other investors are good at saving, but lack a long-term plan for managing their investments.
  6. Retiring With No Plan for Income: Investors need to start adapting a more conservative allocation as they near retirement. This typically means holding less in equities and more in bonds.
  7. Holding Onto the Hoarding Mentality: Retirement portfolios are intended to be drawn down, a concept some retirees struggle with. An immediate annuity can guarantee a stream of income, while using a 4% withdrawal rate, or a similar strategy, can expose the portfolio to market volatility of the markets.

Source: “7 Retirement Investing Mistakes,” Bankrate.com.


Discussion

Larry Keefe from NY posted about 1 year ago:

With regard to: "Investors need to start adapting a more conservative allocation as they near retirement. This typically means holding less in equities and more in bonds."

This cliche keeps getting repeated over and over, and it's a recipe for impoverishment. If Warren Buffet had switched to bonds when he was 65, he'd be a lot poorer today, and so would his shareholders. Given actuarial life expectancies today, a person at 65 should still be considered a long term investor (20+ year horizon) and that means being heavily weighted into equities.

The same with #7. Investing in an annuity, especially for a married couple, means exposing net worth to major shrinkage due inflation and taxes. A 4% withdrawal rate--especially if adjusted on an annual basis--is designed to ride out the market fluctuations that are referred to.

AAII should not pick up and reprint these worthless bromides.


W Tait from TX posted about 1 year ago:

Very interesting; psrticularly comments about bonds during mid-retirement! I have been caught in that premise and as result have seen little chage in holdings in last few months. Have just changed to some dividend funds and am pleased with results thus far.


David Ebner from WA posted about 1 year ago:

Well said Larry from NY (worthless bromides?! I like it.) A retirement investor today needs a plan which takes into account today's risks. While many of today's risks are the same or very similar to those of even 20 years ago, they are different enough that relying on generalizations could ruin the best of intentions.
Please do not use a full service broker. Ever. Everything you'll need including the knowledge to take charge of your own money you'll find at websites like Vanguard, The Motley Fool, Fidelity, ITA Wealth Management, Scottrade and from reading people like Malcolm Berko or Lowell Herr, et al. YOU can do it!


Tony Armendariz from CA posted about 1 year ago:

"Worthless bromides"! Well said, Larry.

I expect much better reasoned and fact based advice from AAII.

...Tony, 67 with a 30 year horizon!


Rachel M. from DC posted 12 months ago:

The value of my retirement portfolio is a snapshot in time.

My lifetime is limited.

Since I want my portfolio to provide value for others after I am gone (heirs, charities), it has more in equities than formulas for my age would advise.

Since I have substantial liquid investments for emergencies or to ride unforeseen (by me) market downturns, why not let it ride?


E Miller from AZ posted 11 months ago:

Speaking of Investment Mistakes, I now see the value of liquidity more than ever!

I was talked into 4 REITs back in 2008 as a strategy to make great dividends and increase/protect my portfolio without being tied into the market. The two from Behringer Harvard quit paying dividends last year, one of them has dropped in principal from $10.00/share to $4.50, while the other from $10.00 to $9.50. The other two decreased their dividends as well as their principals. After much research I see no way to cut my losses and sell these before the pie gets any smaller as I wait for their liquidity dates between 2015 & 2018. Any wisdom out there would be greatly appreciated.


Charles Rotblut from IL posted 11 months ago:

E, if they are non-publicly-traded REITs, you may not many options unless you can prove your broker misrepresented the investments to you.

-Charles


Donald Seifert from NJ posted about 1 month ago:

Retirement starts with conservative spending during the earning years as well as investing for the future. P-- away money on toys at your risk and.... rein in your wife if necessary, assuming you have one ...


Richard Abbott from FL posted about 1 month ago:

I turned 85 this year and have been using 115 minus my age in conservative balanced mutual funds with Vanguard , the rest in short to intermediate bond funds with 3 to 5 years in the money market. During the 2008 - 2009 meltdown I "stayed the course" - I didn't "sell" any stocks and now I am up over 200% from the lows in February, 2009. SOMETIMES THE BEST THING TO DO IS "NOTHING!!!" - JUST HANG IN THERE! I BELIEVE IT IS THE "TIME" IN THE MARKET NOT "TIMING" THE MARKET THAT MAKES YOU MONEY WITH A LOT LESS AGGRAVATION.


Richard Abbott from FL posted about 1 month ago:

I turned 85 this year and have been using 115 minus my age in conservative balanced mutual funds with Vanguard , the rest in short to intermediate bond funds with 3 to 5 years in the money market. During the 2008 - 2009 meltdown I "stayed the course" - I didn't "sell" any stocks and now I am up over 200% from the lows in February, 2009. SOMETIMES THE BEST THING TO DO IS "NOTHING!!!" - JUST HANG IN THERE! I BELIEVE IT IS THE "TIME" IN THE MARKET NOT "TIMING" THE MARKET THAT MAKES YOU MONEY WITH A LOT LESS AGGRAVATION.


Richard Abbott from FL posted about 1 month ago:

I turned 85 this year and have been using 115 minus my age in conservative balanced mutual funds with Vanguard , the rest in short to intermediate bond funds with 3 to 5 years in the money market. During the 2008 - 2009 meltdown I "stayed the course" - I didn't "sell" any stocks and now I am up over 200% from the lows in February, 2009. SOMETIMES THE BEST THING TO DO IS "NOTHING!!!" - JUST HANG IN THERE! I BELIEVE IT IS THE "TIME" IN THE MARKET NOT "TIMING" THE MARKET THAT MAKES YOU MONEY WITH A LOT LESS AGGRAVATION.


Brian Sheppard from CA posted about 1 month ago:

Perhaps a wise approach would be to gradually increase the denominator from 100 to 115 as you age?

Brian Sheppard


Don Metheny from OR posted about 1 month ago:

I have taken a simple approach to retirement withdrawals that will ensure my savings will last a lifetime. First I defined my lifetime as age 96. I consider this conservative. At age 66, I will withdraw no more than 1/30th of my savings. At age 67, I will withdraw no more than 1/29th. At age 68, I will withdraw no more than 1/28th; and so on. At age 95, I will withdraw no more than 1/2 and at age 96, I'll withdraw the rest and die. In good years when my portfolio is up, I will take lots of trips and spend to enjoy. In bad years, I'll stay at home and work the garden or hobbies. I believe this approach will result in maximizing my happiness in retirement and reducing my worries. I am hoping my savings (investments) keep up with inflation, but I am willing to adjust my lifestyle up or down if they don't.


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