Things can happen in life to decimate your retirement savings, and there may not be all that much you can do about it. The unexpected loss of a good, long-term job at, say, age 59 or 60, is one such example. But there are also mistakes that can be just as damaging in the long run, and so they should be avoided at all costs.
One, for example, would be not having an actual retirement plan. Participating in your retirement plan at work is not a plan. Smart retirement savers determine what they will need, define a savings goal and create a plan to reach that goal, often with the help of a financial planning professional. Focusing on doing it right is as important as doing it at all. Smart people focus on asset allocation and periodic rebalancing, and stick to it. They avoid market timing like the plague.
Another common mistake is holding concentrated positions for a long period of time. Many investors accumulate a large position in their employer’s stock, only to see it suffer a big downturn a few years before retirement. This happened, for example, in 2008, forcing some to delay their retirement plans, in some cases indefinitely. The trick is to make a point of systematically selling concentrated positions well before retirement. Set a target for how much you need to sell, set a date to reach that target, and then sell shares regularly.
Take the emotion out of it, too. That way, you don’t have to think about it.
Other mistakes include:
- Investing too little in stocks.
- Being unrealistic about retirement spending, especially in “the go-go years” of early retirement.
- Being too generous with your adult children.
- Maintaining more house thanyou need.
- Underestimating health care expenses and long-term care needs.
- Underestimating life expectancy.
- Failing to understandtax rules.
- Failing to follow late-life distribution rules.