Tuesday, 3 November 2015

Common Retirement Planning Mistakes and How to Avoid Them

Image source: supermoney.com
Retirement planning is crucial in ensuring financial independence and continuous cash flow even beyond working age. While the process may be relatively simple, some people still make mistakes——whether knowingly or unknowingly—that otherwise defeat the purpose. The following are three of the most common blunders people make with retirement planning that everyone should avoid: 

1. Disregarding the value of ‘employer match.’ The U.S. retirement savings plan 401(k) (tax-qualified, defined-contribution pension) is not mandatory for all employers, but for those who offer it to their employees, a match program (employer pays part of it) is often offered. Employees, especially those have worked at the company long enough to have an absolute right to any portion of the account value, must take advantage of this benefit. For the match money to be fully accessed by employees, however, they must also play their part in co-funding their 401(k).

2. Taking a loan from retirement account. It is a cardinal sin to take a loan out of a retirement savings account. Emergencies sometimes force people to do this but as much as possible, other sources must be tapped for this purpose. Retirement funds are often parked in investment machines such as stocks, bonds, and dividend-yielding opportunities. This means that when people pay the money back, the money they took out may have just lost the opportunity to grow and compound.
Image source: ccsstrategies.com

3. Putting all eggs in just one basket. Diversification is key to achieving reliable returns. When one builds an investment portfolio for his or her retirement, it is necessary to place his or her many in various investment instruments (some portions must go to equities, others on fixed-income assets, and so on). A lack of proper diversification can be detrimental to the investment.

Linda O. Foster specializes in federal employee benefits, estate planning, and retirement planning, offering tax-advantaged low-cost investments and financial planning guidance to her clients. For more about her professional background, click here.

1 comment:

  1. "Putting all eggs in just one basket." So guilty of this.