The Top Retirement Mistakes to Avoid When Investing for Your Retirement

The Top Retirement Mistakes to Avoid When Investing for Your Retirement

It’s human nature to make mistakes, but there are some mistakes that can end up costing you quite a lot. This includes when you are investing for your retirement. There are some mistakes that when you make, you can end up paying for them for a long time, such as your retirement planning mistakes. This is even worse as you’re nearing your retirement age. However, you can change this and maximize your retirement savings. You can do this by avoiding the common mistakes that most people make when it comes to investing for their retirement.

Here’s some of the retirement mistakes to avoid:

  • Not Maximizing Your Employer Match

If your employer is generous enough to match up your 401k plan, then be sure to make the most use of it. If you work for the company for a long time, such that you earn the benefit of being entitled to the full amount that your employer has matched so far, you can claim the employer match money. However, this will only be possible if you have also been contributing to the account.

Claiming an employer match is like being given free money, and it is a good return on your investment. In some cases, your employer can match every dollar that you contribute, up to 3% of your salary. In such cases, the best thing would be for you to contribute at least 3% of your salary every month, to maximize your retirement savings.

This way, it means that you will be investing 6% of your salary, even though you will be missing out on spending the 3%. By failing to take advantage of the 3% match that your employer is offering, you will subsequently be living money on the table, and it might affect the kind of lifestyle you live after retirement.

  • Taking a Loan from Your Retirement Account

There are some retirement funds that allow the investors to borrow money from the funds invested so far. Most funds allow for this. The mistake most people make is to borrow money out of these funds. Even if you manage to pay back the money, you will have lost the compounding interest that the money would have earned during that period that you borrowed it.

If you take time and understand how compound interest works, then you will understand the effect of the loss that you have suffered. This is even if you decide to repay yourself the interest that the money would have earned. You will have substantially have lost out on the time that money was out of the account.

retirement mistakes to avoid

There is another possibility that you may not be able to pay back the money you borrowed. Such cases might happen, let’s say if you lose your job before you pay back the money. In such cases, the money you borrowed will be counted as an early withdrawal from your pension plan. As a result, you will be faced with stiff penalties, and you will be expected to pay tax on the money that was withdrawn.

  • Not Diversifying Your Investment

It is not a good idea to put all your eggs in one basket. This especially applies to individuals whose employers provide company stock as part of their retirement plan. Such people tend to only invest in this plan without diversifying into other plans. Without diversifying your retirement portfolio, you are placing yourself at great risk even though you have the potential of getting greater returns. Your investment might be doing quite well, such that you only concentrate on a single investment and you fail to diversify.

When you receive employer stock, there are regulations in place on various things, such as how long you can hold onto it before you can sell it. It is not good practice to hold onto all the stock that you receive and use this as a major part of your retirement strategy. When you invest in other things as well, instead of just focusing on employer stock, you will significantly reduce your risk while you will increase your investment returns.

  • Not Rebalancing Your Portfolio

As much as it is good to diversify your portfolio, you also need to balance it out well. For instance, if your portfolio consists half of the stock and half is in bonds, with time, you might find yourself buying more stocks as the prices of stock go down. You might end up with a 70% portfolio of stocks and 30% of bonds, in case you don’t invest that much in bonds over the same time. Your risk tolerance will depend on your age and how much risk you are willing to take. If you can take a high risk, then you can let the investment stay as it is. But if your tolerance levels are low, you need to evaluate this portfolio from time to time and balance it back to be 50% stock and 50% bonds. This will be a significantly less risky investment.

  • Cashing Out of Your Plan

Anytime you leave an employer, you have the option of doing many things with your retirement funds that you have saved so far, and this is where people make major mistakes. You have the option of still staying in your employer’s plan. This is not such a bad idea if this possibility exists and you do not have any other retirement account, where you can roll over the funds to. Your second option is to roll over the money into another retirement account if you have another account. This is known as trustee to trustee transfer. You can roll over the funds to your new employer’s retirement plan or to an IRA.

The third option is to withdraw the money. Here is when many people err. They usually withdraw their retirement money with the intention or reinvesting it somewhere else. This is quite different from rolling over the money into another retirement account. When you withdraw your funds before your retirement age, you will be taxed heavily for this. This might cost you as much as half of the retirement money you have saved so far.

On the other hand, if you opt to roll over the funds, you will not be taxed or charged hefty fees. This essentially means that all your funds saved so far will still be intact in your new account. Therefore, your best move is to roll over your retirement funds into an IRA anytime you leave an employer. Apart from avoiding hefty penalties, you will have many other investment opportunities open to you considering that 401k plans usually have limited retirement investment opportunities. Also, you will face significantly lower fees, given that most 401k plans to charge a lot of fees.

  • Becoming Paralyzed by Choices

There are so many factors to be considered when you are deciding what to invest in. This includes deciding how much money to set aside for retirement, calculating how much funds you will need to retire on and what kind of investments are the most suitable one’s for you. Even though there are so many decisions to be made, do not allow yourself to be paralyzed by inaction.

Failing to take any action or avoiding the issue altogether is one of the worst things you can do when it comes to planning for your retirement. Therefore, just start with one thing at a time. When it comes to retirement, you need to take advantage of time since this is your biggest asset in addition to compound interest. The best thing you can do is to make sure that you get started by saving into any retirement account. This can be one that is set up by your employer or an IRA.

As time goes by and your investment grows, you need to think about starting to work together with a certified financial planner as you draw closer to retirement. You can discuss the planner different strategies and which one is the best one for you to go for.

  • Trying to Outsmart the Market

In 2010 I came across a financially savvy investor, who had managed to rack up $ 6 million worth of real estate investment before liquidating it. He then decided to invest in the stock market. Within 3 years, he had managed to lose half of his investment.

He decided to seek help from a qualified financial expert to help him recover his losses. He came to me for help, hoping that I could assist him to recover his money within a year or two. He wanted a financial expert who was savvy enough to time the stock market the way he had timed the real estate market and made huge profits out of it. Since it is not possible to promise someone something like that, I just let him know that I cannot assist him to do what he wanted. It would take a financial wizard and lots of good luck to be able to do what he wanted.

A lot of people try to trade stocks as a fast way of making money. However, only half of them succeed. Investment is a process. It takes more than trying to time the market right. If you want to make money in the stock market, realize that it takes time.

  • Investing in Property Deals That Are Hard to Liquidate

I was employed by a CPA firm between 2001 and 2004. We had a client who was a dentist. He had friends who put together real estate deals that were supposed to provide a 20%-26% return. This sounded like a good deal, considering that property prices usually go up.

biggest retirement mistakes

The dentist decided to put most of his retirement cash into these deals.  Unfortunately, things did not work out as intended. This is because such deals are hard to liquidate. In case things don’t work out, you might have to wait until property prices go up again. This can be a long wait. The client was left with no money and no income for a long period of time, and he had an asset that he had no idea when its price would go up.

Adding a property to your portfolio can be a great deal if you know how to go about it. It might not be such a good idea to invest in property that you cannot easily liquidate.  The best option would be to invest in real estate trusts or buy property which has a modest operating account in case any problems come up.

  • Blindly the Following Advice That You Don’t Understand Well

One of my clients got in contact with me in 2007 to let me know that he was backing out of the financial retirement plan we had, where he was supposed to withdraw money from his IRA. I was surprised and questioned his decision to back out.

The client told me that he had put in $80, 000 in a trading platform that was earning him a 60% return rate. That is a monthly income of $ 4, 000. I was shocked since I knew that it was not possible to have such a high return rate over a prolonged period. Within four months, the platform went under, as it was a Ponzi scheme. He was eventually able to recover his money many years later after a prolonged court battle, and he got a tax write off for the money he lost.

This client had heard about this investment strategy in one of the seminars that he attended. It is important that you don’t just invest in any strategies you hear about unless you have a very good understanding of how they work. This is one retirement mistake boomers should avoid.

  • Making Risky Loans with Too Much of Your Net Worth

I introduced a 62-year-old lawyer into the idea of giving out private loans and earning 10% interest as a result. Giving out these loans had some level of risk. Therefore, we agreed that it would be best if he only invested 10% of his funds into this venture, but after some time, he decided that he wanted to invest his entire retirement funds into giving loans. Since I didn’t agree with his point of view, we had to part ways. It is quite risky to invest all your retirement funds into one strategy. This is one of the worst retirement mistakes. Always diversify.

retirement investment



Do not gamble with your retirement funds. To avoid mistakes retirees make, you need to follow out a well laid out retirement investment plan. This will help you have regular earnings after you retire. In case things go wrong, you will mainly have yourself to blame, therefore think through any decisions you are making to avoid these biggest retirement mistakes.


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