Staying abreast of your financial investments is not an easy feat. A survey by Fidelity Investments concluded that most of the citizens in our country cite managing finances to be a major source of stress, second only to job-related stress. Making wrong investment decisions during retirement can be more stressful as the returns from investments might only be the source of income. Read the following article as it mentions five mistakes to avoid in retirement investing:
- Not taking full advantage of tax breaks The types of retirement investments are more important than a person’s actual investments. In such cases, tax-favorable- 401(K), IRAs are the most useful investments as they enable tax-deferred earnings upon maturity. However, most of the employees do not invest in such investment plans. It is disadvantageous because the person might be passing up the opportunity to invest in a plan in which their employer matches a portion of their contribution. Workers, whose employers do not offer any investment plans should preferably open IRA accounts and take advantage of tax breaks.
- Not saving enough for investments The next hurdle after signing up for a 401(k) is figuring out the best amount to contribute to the investment plan. The employer usually has a default contribution of merely 3%. So, it is best to take control of the remaining percentage for a financially secure retirement. Financial advisors suggest that the person starting to earn at 25 and planning to retire at 67 can have 9% employer-employee combined saving rate. This might be sufficient for the employees to maintain their pre-retirement living standards even during retirement.
- Investing in retirement plans with high enrolling fees Retirement plan fees can run as high as 4 percent but, financial experts suggest to opt for plans only for 1.5 percent. This includes mutual fund fees and record-keeping costs. If the plan fees are reasonably high, investors should ask if the retirement plan is working with a professional plan fiduciary. This is because it is their duty to act in the best interest of the clients to save their money against the retirement plan.
- Focusing only on one risk Most investors need substantial returns on their portfolio to maintain pre-retirement standards even during their retirements. This can happen by taking risks by investing in stocks. Avoiding stock risks can give rise to other types of risks such as the possibility of outliving the invested money.
- Investing without a plan There are many investors who follow who jump into the market and invest in the most popular sectors which might not be suitable for their profile. Investing without a plan can strip away all the savings when the market crashes, forcing them to start all over again. Thus, it is important to have a “blue print” ready for an investment plan to avoid maximum losses when the market doesn’t perform well. Several investment advisors suggest looking at the “stop-loss” of every investment as it can help the investor get some returns even during the worst financial phases.
Investors have been hesitant to put in their savings after the market crash that occurred in 2008. But considering that it has been more than a decade, the market has crossed the S&P 500 benchmark and has doubled its returns. Thus, it is important to have some exposure to stocks even if one is years away from retirement or even if they are already retired.
