3 Risks That Can Destroy Your Retirement Plan

Author: AB Staff

3 Risks That Can Destroy Your Retirement Plan

Editor Pick 2 Finances


Most people are well aware that high investment fees can greatly reduce their retirement savings over time. However, there is another, even bigger problem that investors need to be wary of: mismanagement.

Inefficiently managing your retirement money can have a big impact on your savings. A recent study found that investors who focus on reducing money management mistakes have a 42% better chance of saving enough money for retirement than those who focused on minimizing fees.

So what mistakes should you be on the look out for? Here are 3 big ones.

Simplifying Risk – Retirees and investors are always warned about how dangerous risky investments are. When, in reality, there’s a big risk in not taking risks.

Instead of thinking about your retirement strategy as one big pot of money you need to care for and protect, think about it as several pots each for different spending needs. You can then match your investment risks with those needs. For example, you can break your investments into three pots: living expenses, lifestyle, and healthcare. Your risk tolerance will vary by pile, as you would most likely choose a lower risk investment for money meant for food, shelter, and healthcare, but wouldn’t mind taking a bigger risk on money for vacations or eating out.

By not simplifying risk, you can potentially increase your earnings. If you want to learn more about risks and retirement savings, check out Understanding Retirement Risk Factors.

Focusing on Social Security Over Savings – Most people think that holding off on cashing into Social Security as long as possible is always the way to go. But, this strategy only works if you don’t need to use your long-term savings to tide you over until you get your Social Security benefits.

It’s much better to think about optimizing your Social Security rather than maximizing it, as using your savings too early can actually hurt your Social Security claim. There’s no rule of thumb when it comes to Social Security, so always talk to your financial advisor to come up with a personalized plan.

Still foggy on Social Security? Visit Understanding How Social Security Works.

Missing Tax Cuts When Selling or Tapping Accounts – Everyone thinks about taxes when it comes to a 401K or IRA, but most people don’t think about taxes on the other side of retirement saving – selling holdings or withdrawing money.

You can easily increase your take-home retirement money by being smarter about taxes. One way is by utilizing tax-loss harvesting in taxable accounts, meaning sell a losing security to realize the loss, effectively offsetting gains in another portfolio to minimize taxes. You can also use Roth IRAs whenever possible to draw down income, as Roths are not taxable.

Learn more about taxes and retirement savings at 4 Tax-Efficient Strategies in Retirement.

Avoid these common mistakes and you’re sure to see a greater return on your retirement savings.

Did we miss any big retirement savings mistakes? Comment below! We’d love to hear from you.

Don’t forget to check out some of our other retirement savings tips.