If you want to maximize your retirement savings (and who doesn’t?), there are some common mistakes you need to avoid. The 2020 Retirement Confidence Survey Summary Report showed only 27% of Americans, roughly one in four, feels very confident they will have enough money in retirement to live comfortably. Although that number is up four-percent from the 2018 survey, it still shows how nervous people are about retirement. There’s no simple way to ease people’s minds. But to boost confidence, there are things you can learn about to help increase your self-assurance that you’re on the right track as you get closer to retirement age.
Mistake #1 - Not Maximizing Your Contribution
Many people think they can’t afford to maximize their retirement contributions, but in reality, they can’t afford not to maximize it. When you fully fund your retirement account, you are much more likely to reach your goal. The earlier you start, the better. Compound interest is a beautiful thing and, over the years, it will work its magic on your investments and interest, growing on a tax-deferred basis.
Mistake #2 - Not Having a Plan
You wouldn’t build a new skyscraper without plans, would you? If you want to grow your retirement fund to new heights, you need to think the same way and have a plan for what it will look like in the end. If you’re accustomed to living a certain lifestyle, chances are you aren’t going to want to downgrade when you retire. If you haven’t created a plan, that might just be what happens. If you’re not sure where to start, consider working with a retirement planning professional. You can paint them a picture of what you envision. They can plan it out for you, showing you what you need to do to make your vision a reality.
Mistake #3 - Having a Mindset in the Short Term
Most people understand the stock market fluctuates. It’s up, it’s down, it’s up and down in the same day. That’s just how it works. When you look at investing for the short term, it is much more risky. When you hold long term, stocks are historically in your best interest. Over the long haul, the market shows relatively stable earnings. If you decide to sell your holdings when the market dips, you will likely incur losses. Over the long term, that’s not going to help you to achieve your goals.
Mistake #4 - Trying to Outperform the Market
Everyone’s heard of a day trader; they try to make money by executing trades throughout a given day. It’s a lot like gambling since no one knows what any given stock will do. They try to buy low and sell high, but the problem is, it’s anyone’s guess as to when those times are. Not only can you lose a lot of money doing this, but it can mean that the money being used to do this isn’t investing in a long term, more stable investment. That means you’re losing money in the long run.
Mistake #5 - Having All Your Eggs in One Basket
It’s sage advice; never put all your eggs in one basket. This is true with your investments too. A big mistake is to put all your money into one fund or asset type. If something happens in that market or sector and your investment tanks, you’re out of luck. By spreading your money over different investment types you are protecting all of them. It’s not unusual for one sector to see losses while others see gains. When you spread out your investments, if one goes down in value and you lose money, chances are you’ll be gaining more money in other funds.
Everyone has made mistakes with money, and you may have even made some of these with your retirement account. By avoiding these mistakes going forward, you’re more likely to see your retirement account reach new heights and protect the capital you already have.