- Saving for retirement is a big financial goal for most people, so you’ll want to avoid mistakes.
- Unbalancing your portfolio, irrational investing, and ignoring 401 (k) matches can hurt you.
- Other mistakes include not saving enough, taking into account all your retirement expenses and more.
- Read more from Personal Finance Insider.
Retirement is one of your biggest financial goals – and although many of us have years (or decades) to go, the small decisions you make now can have a major impact on your golden years.
According to the Federal Reserve, 44% of non-retired adults believe they are not about to retire. One in four non-retired adults says they have no retirement savings at all.
There are some common mistakes that economists make, which can quickly save them money and make it difficult to get back on track. Avoiding these mistakes from the beginning can save you in the long run.
1. Don’t rebalance your portfolio over time
Rebalancing your portfolio can help ensure that it is diversified and on track to achieve your goals. It also helps mitigate market changes. Most savers will move their investments to more conservative options as they approach retirement age.
You should rebalance regularly – about once a year – and make only modest adjustments to your plan. If you have multiple retirement accounts, it’s important to consider allocating your entire portfolio, not just each individual account.
Do you want a hands-free approach? Many 401 (k) options give you the option to invest in a target fund, which helps you automate your investment with a fund that adjusts as you approach retirement age.
2. Choose your own investment strategy
Some economists manage their own retirement investment strategy by placing their nest egg in a taxable brokerage account – which can mean lower fees, a wider selection of investments, and potentially higher returns.
But active management of pension funds is more risky and time consuming. We often invest irrationally, and the last thing you want is for your behavioral biases to prevent you from retiring. Not to mention that you won’t get the tax deferral and 401 (k) s employer matching benefits if you go it alone.
3. Ignore company match
If your employer offers a 401 (k) match, take advantage of it! Sign up and make sure you contribute even up to the equal amount – after all, it’s free money.
For example, if your employer has a 5% match, make sure you contribute at least 5% of your income as long as you are below your total contribution limits.
4. Change jobs too often
I’m not a career coach, so I can’t tell you if staying in a certain job is good for your career. But I can say that changing jobs many times over the years can mean leaving behind potential savings for pensions.
Many employers contribute to the 401 (k) plan, profit sharing plan, or stock options. However, there is a problem – most have to “announce” a certain number of years before they can take full ownership of the money. Most award programs range from three to five years.
Before you give two weeks’ notice, be sure to check your assignment schedule. If you are close to the deadline, you may want to consider whether changing your job is worth leaving that money behind.
If you change jobs, don’t forget to transfer the old savings plan to the new one. Moving your old 401 (k) to another plan can save you money in the long run with lower taxes. You will also sometimes have a wider selection of investments in your new plan.
5. You forgot about tax diversification
Taxes affect how much money you receive to keep in retirement, and tax diversification is a strategy to help your money withstand retirement. Your retirement accounts contain deferred, taxable and tax-free funds. Creating a strategy that takes into account the different tax treatments of your accounts can help you save money and give you more flexibility in how you access your savings.
A good example of this is combining your pre-tax 401 (k) savings, which are taxed when you withdraw them, with non-tax Roth contributions.
6. You do not consider all retirement expenses
We all want to stay healthy for the rest of our lives. But the reality is that you may face an expense related to health care or even need long-term care, costs that are much underestimated. Some models estimate that a couple who retire at age 65 will need between $ 197,000 and $ 285,000 for health care alone.
Although it can be difficult to predict what your medical needs will be like during retirement, estimating costs and making a plan can help you avoid negative financial results. I also recommend that you seek long-term care insurance to cover future costs.
7. You don’t save enough
The biggest mistake I see others making while saving for retirement? That I don’t save enough – or not at all!
Saving for retirement is something that lasts for years, and starting as early as possible gives you more time to put money aside, make a plan, and take advantage of compound interest. The longer you wait to save, the more daunting and stressful it can seem.
Keep in mind that these are mistakes that many people make when they save for retirement – I fell into the trap before me! But if you have a clear plan and stick to it, it will help you be dedicated to your goal – and make sure your golden years are truly golden.