THE BLUNDER: Many people know they have a pension plan, but they’re not quite sure how it works, how stable it is, or exactly how their money is invested. Others retire prior to eligibility, which can result in a substantial loss of pension benefits. And still others simply rely on past information, without taking into account how the Pension Protection Act of 2006 could affect their retirement benefits.
THE SOLUTION: Keep up with your pension plan and make sure you understand it. How much monthly income will it provide? When are you eligible to retire? Be aware of the Pension Protection Act of 2006, and how it may affect your retirement. If you’re confused, seek the professional advice of a qualified IRA advisor and a retirement income strategist.
2. NOT UNDERSTANDING YOUR 401(k) PLAN OPTIONS
THE BLUNDERS: Misusing or not properly utilizing your 401(k) plan, not being properly diversified, misallocating, not using after-tax monies correctly, and being unaware of the age 55 rule (possible tax penalty for early withdrawal). These mistakes could potentially limit or reduce your retirement savings.
THE SOLUTION: Understand that it’s your job, not your employer’s, to oversee your 401(k) investments. Take the time to learn about your plan and your options. Speak with a financial advisor to be sure you’ve diversified not only your 401(k) plan, but your entire portfolio – in a way that will yield the highest possible benefits. Above all, make sure you’re not being too cautious or taking on too much risk. The goal is to make your money work hard for you, now and in the future.
3. MISSING OUT ON THE COMPANY MATCH
THE BLUNDERS: Not taking advantage of your company’s 401(k) contribution match. This is, in essence, “free money” that’s yours for the taking. It’s as simple as that … if you don’t take it now, you won’t have it later.
THE SOLUTION: Do whatever you can to maximize your contribution. If every dollar you put in could be matched, then every dollar you DON’T put in is essentially two dollars you’ll miss out on down the road. Think about ways you could increase your contribution to gain more in matched dollars. Maybe it’s as simple as cutting back on your daily coffee budget, or canceling that gym membership you’re not using. Whatever you can do to squeeze even a few more dollars in now can really make a difference later.
4. RELYING ON FRIENDS & TRENDS
THE BLUNDER: Listening to advice that, no matter how well-intentioned, may not be beneficial or even accurate. Allowing friends, co-workers or the latest “hot” trends to influence your investment decisions can be dangerous. And what worked for someone else – five years ago or five minutes ago – may not work for you.
THE SOLUTION: Take the time to learn about your options. Read, attend seminars or classes, meet with a professional. Investing on a whim could cost you dearly when it comes time to retire. Instead, do your research and invest wisely.
5. NOT CHECKING IN WITH UNCLE SAM
THE BLUNDER: Being unfamiliar with the tax laws. Many people make plans for retirement without considering how IRS rules will affect them. For example, are you assuming you’ll be in a lower tax bracket when you retire? Or did you know that you may be able to avoid the usual IRA 10% early-withdrawal penalty, according to IRS Rule 72t?
THE SOLUTION: Do some research and become familiar with the tax laws, or speak to a professional who understands them. Tax laws are a very important piece of the retirement puzzle, and you can’t afford to ignore them.