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Northeast Investment and Insurance

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Retirement Planning Pitfalls and How to Avoid Them

A Conversation with Bill MacGregor, Investment Representative Northeast Investment and Insurance Services

How do I know what my retirement savings goal needs to be?

This is a central question to retirement planning. The answer is different for everyone. It depends as much on the desired lifestyle and individual goals as it does on retirement resources (like health insurance, pensions and Social Security) and your current budget. There are many retirement income estimators available online that can be used as a guide.

As you're thinking about your golden years, be aware of the following common retirement planning pitfalls.

“I'm too young to worry about saving for retirement.”

The best time to start investing is when a person is young. Compound interest favors time.The more time you have and the more you make -- the less you will need to set aside. For example, if a 20 year old set aside $362 per month at 8% per year for 10 years and then stopped investing, at age 65 the account would be worth $1,000,500. If a 35 year old made the same investment, the account would be worth $315,400 at age 65. (This is a hypothetical example and is not representative of any specific situation. Your results will vary).

Many employers will match some of your contribution to a 401K or other company sponsored retirement plan. Anyone who participates in a matching plan should at least contribute up to the match. Let your employer help you retire. If you get periodic raises for cost of living or merit, consider taking a portion of each raise and allocating it to your retirement plan. If you don't save it, it will simply be absorbed into your budget.

“I've left my old 401Ks and Retirement Plans with my former employers.”

A company-sponsored retirement plan is a great place to accumulate money for retirement, especially when there is a company match. However, they may be difficult to keep up with when you change employers. It is not uncommon to find someone who has three to five retirement accounts established in different places. At some point having too many accounts becomes difficult to manage, and at retirement it is nearly impossible to figure out which account is supposed to do what.

A 401K limits you to whatever investments are in the plan. An IRA has no such limits. However, with so many investments available in an IRA -- to try and learn about them and figure out how one might benefit you more than another is a full-time job. If you are already working with a financial advisor, then he or she already has that full-time job and will be an excellent resource for you.

Once the appropriate IRA selection is made, the process of rolling over a retirement plan into an IRA is not difficult. Some plans even allow the rollover to be made over the phone. (Your financial advisor can provide guidance on your rollover options).

“I don't need to save for retirement because I'll inherit my parents' money.”

There are too many people who are counting on someone else to provide a retirement nest egg. Today, people are living longer and may need to spend “your inheritance” on their long-term healthcare. It is more important than ever to make sure that we are fending for ourselves and not relying on anyone else to provide for us.

“The market is too volatile to invest retirement funds in.”

Keep in mind that the market has always gone through cycles and each cycle is brought about by different circumstances. Experts are correct in saying, “But this time is different.” One common thread that has linked all cycles together is that a recovery has always followed a downturn regardless of what caused it. The key to volatile investments is to diversify. Investing in many different types of stocks and bonds may help to lessen the impact of large market movements. Often times while one investment is down, another investment may be up. (There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not insure against market risk).

“I'm too old to start saving for retirement. Plus I've got Social Security.”

While Social Security is a significant part of a well thought out retirement plan, it was never intended to be the whole retirement plan. It was only intended so that retirees would not have to go hungry. The Social Security Administration may have to change benefits or age qualifications to remain viable but it will always be there.

Many people begin saving for retirement later in life. Early or late, one has to set realistic expectations about when they will be financially able to retire. If you start saving at age 40 it is not likely that you will be able to retire at age 60. If the diligent retirement investing effort begins at age 20 you might not have to work beyond the age of 60. Today is a good time to start; tomorrow is too late.




For more information about retirement planning and wealth accumulation, contact Bill MacGregor at 1.866.772.1620.

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