Retirement Planning Education
5 Retirement Planning Errors
Are you saving for retirement? Part of being successful in funding the retirement you desire is avoiding common retirement planning mistakes. By participating in the plans that are available to you, diversifying, and leaving the money alone, you can nearly guarantee a financially pleasing retirement.
For your best retirement plan results, avoid these common errors:
1. Failing to participate in your available plans.
There aren't many companies offering pensions anymore. You may have a 401(k), 457, or 403(b). Companies make it easy for you to enroll, and these programs are incredibly worthwhile. Interest-deferred accounts are tough to beat. Enroll today, if you haven't already. It adds up over time.
If your company matches a percentage of your contribution, so much the better. It's like a raise you didn't have to earn. Free money is free money.
2. Lack of diversification and playing hedge fund manager. Avoid the temptation to play hedge fund manager with your retirement accounts. That's great if you're Warren Buffet (you're not) and spend 40+ hours a week investing. For the average person, the best advice is to keep investing every month like clockwork.
- The market returns 10.5% in the long haul, so get your money in there and don't worry about trying to time things. Avoid becoming overly worried about the instability in the Middle East or the typhoon that just struck Cameroon.
- Spread your money around. It's true that diversifying potentially limits your gains, but more importantly, it will limit your losses. Significant losses can take decades to rectify. Diversify your retirement funds.
3. Borrowing money from your retirement. It might be allowed, but that doesn't mean it's always wise. Anytime you take money out, it may never find its way back in.
- When borrowing from your retirement is an option, consider the long-term effects and ensure it's the right choice for you. Remember that you suffer the lost future earnings if you don't pay it back, and there's the 10% tax penalty when you take it out.
4. Cashing out.
It's surprisingly common for people to cash out their plan when they leave a job instead of rolling the money over.
- Moving expenses, vacation, a down payment on a new house, and more can use up the money faster than you realize. Be mindful of this.
- Talk to your accountant about rolling over the funds straight into your new plan. It's easier when you don't touch the money in the first place.
5. Way too much of your employer's stock. Even though you might get a good deal on it because you work there, company stock should make up a small part of your retirement plan. If the stock is attractive, you can certainly include it in your plan. However, remember the importance of diversifying your portfolio as well.
As with many things, you are avoiding mistakes is often the key to being very successful. If you can avoid these five common mistakes, your odds of having a financially successful retirement go up dramatically.
Welcome to The Road to Financial Empowerment, where we're "Unlocking True Financial Freedom, One Step at a Time." I'm Darnell from Empowering Your Finance,
Financial empowerment begins with education. Equipping yourself with essential financial literacy skills transforms you from a passive participant in your financial journey to an active future architect.
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Budgeting What is budgeting? Budgeting is a process for tracking, planning, and controlling the inflow and outflow of income. It is a process that we all begin soon after we get our first spending money. Relying on our overloaded minds to manage such a complex process has many shortcomings. The solution is to analyze your current situation, determine your goals, and develop a written plan against which you'll measure your progress. How does the budgeting process work? The budgeting process begins with gathering the data that makes up your financial history. Next, you use this information to do a cash flow analysis. You will calculate your net cash flow, which tells you whether cash is coming in faster than it's going out, or vice versa. Then you will determine your net worth. Simply stated, this is the sum of everything you currently own less the sum of everything you currently owe. Having a snapshot of your present financial situation, you'll then define your financial objectives and create a spending plan to achieve them. Finally, you will periodically check your progress against the plan and make adjustments as needed. Analyzing cash flow is little more than adding and subtracting: Add up your income, then your expenses, and subtract the latter from the former. The result is your net cash flow. If it is positive (hopefully), you're earning more than you're spending. If not, then budgeting is not really an optional process. You must do it to avoid losing more ground financially. To the extent that you can make cash flow strongly positive, you will be able to save for upcoming needs and investments.
While some fads come and go, some timeless things always ring true. Money has been around in one form or another for ages; it only makes sense that certain truths have been discovered wisely to use this asset wisely. Here are ten rules that will never steer you wrong: 1. Practice intelligent risk management. Unless you have a large income and are very frugal, you're never going to amass a fortune by putting all your money in a savings account. That 0.31% interest might be about as safe as you can get; however, higher-risk investments are preferable over the long term to low-interest income-producing investments. In today's terms, think of stocks for long-term investments rather than low-risk bonds or savings accounts. 2. Have an emergency fund. With some savings to handle the inevitable hiccups that happen to everyone, your long-term plans can be in good shape. With an emergency fund, when a significant financial challenge comes into your life, you can avoid having to dip into your retirement to pay your bills. 3. Diversify. Putting all your eggs in one basket can be catastrophic if something happens to that basket. A significant financial loss to your portfolio can take ten years or more to recover from. Diversifying your investments limits the amount of your losses. 4. Be patient. Successful investors spend most of their time sitting, not buying or selling stocks. When you find an outstanding stock to purchase, it can be several years before the price matches the value. Many investors have sold too soon, only to discover they should have waited.