When I first started saving for retirement, I had no idea what I was doing. What kind of fund should I pick? Should I choose a traditional or Roth 401k? What was a good enough savings rate?
Here are some of the most common retirement mistakes I’ve made and what you can do to avoid making them.
Not Getting Specific Advice
Some retirement guidelines say you should bank six times your annual salary by age 60, while others say you need 80 percent of your current annual salary for every year of retirement. No matter how good the rule of thumb is, it remains a generic piece of advice.
When it comes to retirement, generic is bad.
If you’re saving for retirement, you need to get specific information from a financial planner who knows your situation intimately. Anything else is leaving your future up to chance.
Paying High Fees
Many people fail to check what fee they’re paying for their investments. While a fee of two percent may seem small, it can cost you hundreds of thousands of dollars, compared to a fee of .5 percent.
A good rule of thumb is to pay one percent or less in fees. Otherwise you’re just throwing money away. Firms are required to list their fees clearly, so it’s simple to find and compare.
Not Planning for Taxes
It’s easy to look at your nest egg and assume you have enough money to live on. But many soon-to-be retirees forget that they may owe taxes on their withdrawals from traditional 401ks and IRAs.
An accountant or financial planner can help you plan for those taxes while possibly offering ways to decrease your tax liability.
Not Planning for the Worst
Most retirement plans hit a rough spot at some point. Some people stop working because they’re physically unable, they get laid off or they’re reeling from an unsuccessful business venture. It’s a good idea to have a backup plan, whether it’s a disability policy or an emergency fund.
Overestimating Your Investment’s Returns
Dave Ramsey once famously wrote that you could expect to make 12 percent returns on your investments. While this number sounds great to investors, it’s a high benchmark to reach. You can look at how your funds performed in the past to get a more accurate view, but realize that past performance isn’t indicative of future results.
It’s always better to skew more conservative with investments in case the market tanks and is a safer bet.
Relying Exclusively on Social Security
Social security has been a mainstay of retirement plans for decades, but it should be thought of like dessert at a dinner party: a nice bonus, but not guaranteed.
The average social security monthly benefit was $1,335 for retired workers. While that number can beef up your nest egg, it can’t replace it. You can use social security in your retirement calculations—just don’t rely upon it.
About the Author: Zina Kumok is a writer for TraditionalIRA.com and RothIRA.com specializing in personal finance. She started covering personal finance while blogging about paying off $28,000 worth of student loans in three years. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, Daily Worth and Time magazines.