We are not saving enough for retirement. Period.
According to a report released today by Bankrate, more than a third of Americans have saved nothing for retirement. It’s worse for those under 30: More than two-thirds haven’t saved anything.
That’s the first mistake Americans make when saving for retirement–just not saving enough or at all. But there are plenty of other mistakes we’re making when it comes to retirement. How do you stack up? Are you making any of these mistakes? Share what you have learned from your retirement investment mistakes in the comments below or by emailing [email protected]
1. Failing to save enough. Few Americans save adequately for their retirement, but that doesn’t help with turning a little into a lot in a short period of time. Most planners suggest you’ll need about 75-80% of your current income to live comfortably in retirement. Get started now, or you’ll never get to where you want to be.
2. Not taking enough risk. If you don’t take enough risk when you invest, you invite the very real possibility that you’ll run out of money before you’re halfway through your retirement years. Over time, inflation will seriously eat into buying power. Some financial advisers tell their clients to have at least 60-70% of their assets invested in the stock market at all times. Every investment carries some risk–including the possibility that inflation may eat away at your investment until there’s nothing left. A good step would be to learn how to tolerate risk, and incorporate it successfully into your portfolio.
3. Putting all your eggs in one basket. It’s far too risky to invest all of your retirement money in one stock, one mutual fund, or even one bond. That’s especially true as you get closer to, and enter the early years of, your retirement. Diversification is a good thing. If you hold some of your employer’s stock, make sure you’re well diversified not only in different companies in your industry but also in other industries, companies and countries. Similarly, consider keeping your holdings in your own company to no more than 10% of your total retirement fund.
4. Calculating your return incorrectly. Your return is the percentage gain of your investments minus the cost of making the investment. Don’t include the dividends that you reinvest when you’re calculating your return. If you do the dollar-cost averaging, figuring out your real return will be time-consuming. Try keeping track of the approximate price, each month, on the day you make your additional investment. Or, look at your year-end figures and average them out.
5. Failing to roll over your lump-sum pension distribution. If you change jobs or retire early, or if your company gets sold, you may receive your pension in a lump-sum distribution. If you roll the money over into a tax-deferred IRA and keep it growing, you’ve done the right thing. Unfortunately, the U.S. Department of Labor says only 21% of folks in this situation do so. The other 79% spend the money on themselves or their families, buy into franchises or develop home-based businesses. That’s all well and good, but unless the business pays off, they may be risking their retirement altogether.