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