Six Retirement Planning Mistakes to Avoid

We all make mistakes, but learning from our mistakes and identifying
what mistakes to avoid can make a big difference. Here are six common
mistakes people make with retirement planning that you should avoid.

1. Not maximizing your match. If you work for an employer who offers a 401k
   or other retirement plan with a match program, take advantage of it.
   This is free money, and the best return on your dollar that you’ll
   likely find. By not maximizing your employer’s match is leaving money
   on the table.
   
   
   
2. Taking a loan. Too many people treat their retirement plan as a savings account if the plan allows for loans to be taken out. Borrowing money from your retirement savings
   can be a costly mistake. The money you take out doesn’t have the chance
   to grow and compound like the rest of the money. While you may pay
   yourself back the interest, it generally doesn’t make up for the time
   lost. Also, if you leave your job before repaying the loan, it may
   count as a distribution if not paid off in full. This means paying
   taxes and possibly a stiff early withdrawal penalty.
   
   
   
3. Not diversifying your investments. Don’t put all of
   your eggs into one basket. Sound advice, yet people often don’t follow
   it. It is easy to get caught up in your investments when the market is
   doing well, and chasing those big returns may seem like a good idea.
   Without proper diversification you are subjecting yourself to higher
   risk with only a potential for better returns. A properly diversified
   portfolio will help you minimize your risk while maximizing your return.
   
   
   
4. Not rebalancing. While diversifying is important, it
   doesn’t do much good if you don’t regularly rebalance your portfolio.
   Over time, your portfolio of 50% stocks and 50% bonds probably won’t be
   the same as when you started. If stocks experience a period of
   significant growth, the stock portion of your portfolio will grow while
   your bond holdings may only grow slightly. This disparity could turn
   your portfolio into a 70% mix of stocks and 30% bonds. This portfolio
   is now significantly more risky than your initial 50% mix.
   
   
   
5. Cashing out. Many people decide to cash out their
   employer retirement plan when they leave the company, which is a bit
   mistake. This distribution becomes fully taxable and possibly subject
   to an additional early withdrawal penalty. For some people this means
   nearly cutting the account value in half! When you leave an employer,
   you should consider rolling the money over into your new employer’s
   plan or an IRA. This eliminates any current taxes or penalties that
   would otherwise apply.
   
   
   
6. Paralyzed by choices. “How much money do I need to
   save?” “How much money do I need to have in retirement?” “What
   investments are right for me?” Retirement planning is full of important
   choices to make, so don’t be forced into inaction by them. Take things
   one step at a time, and don’t let the sheer number of choices stop you
   from moving forward. Time is a valuable asset; don’t let it go to waste.