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The Top Retirement Planning Mistakes Investors Make

The Top Retirement Planning Mistakes Investors Make

Retirement planning is like climbing a mountain. To reach the summit, you must get a grip on the best investments and wisely navigate risk. Particularly in today’s uncertain economic climate, having a dialed-in strategy with clear goals and rules is pivotal to reaching one’s wealth targets. Ty J. Young, the founder of Ty J Young Wealth Management, explains some of investors’ top retirement planning mistakes. 

Avoiding the following pitfalls will put you in a better position to scale the mountain and reach your retirement goals.

Lacking Realistic Goals

Many investors fail to set realistic goals for their retirement years. Even if they do, they typically underestimate their future expenses, failing to account for the impact of inflation on their post-retirement needs. 

For example, Americans believe they need $1.46 million or more to retire comfortably — a figure that has risen by 53% since 2020.

On top of that, some investors overestimate the coverage offered by Social Security and Medicare. Medicare coverage is limited to short-term care, which means that retirees need additional options for long-term care in their later years. 

How can you learn to set clear goals? And how well does your current investment plan align with these goals? This is where it helps to receive guidance from a wealth management advisor who can help you clarify your vision and strategy as you move forward.

Taking Too Much Risk

Over the years, Young has noticed that investors make mistakes when interacting with the market. “The two biggest mistakes are too much risk and paying high fees,” he observes. “It is all sunshine and roses when the market is going up, but when the market corrects or crashes, the losses are too great, and the fees add insult to injury.”

Risk doesn’t necessarily come from any one particular investment. Over time, your portfolio can become unbalanced, tipping too heavily toward one market sector rather than pursuing a diverse array of stocks and investments.

To counter this, investors should pursue two kinds of diversification: within and across asset classes. 

Diversity within an asset class means investing in stocks from multiple sectors to mitigate the risk of industry-specific downturns. But it’s equally important to diversify across asset classes — meaning you put money into other investments such as treasury bonds, real estate, or even precious metals. 

Paying High Fees

High fees can cut into your investment returns. Investors commonly incur fees each time they buy or sell a security, but brokers can also charge fees to maintain or actively manage your stock portfolio. Depending on your broker, they may earn a fat commission when your stocks perform favorably.

Unfortunately, the solution isn’t simply to seek out the cheapest broker or brokerage platform. After all, some fees cover the cost of actively managing your portfolio, and you want to ensure that your money is in good hands.

Instead, find a management advisor who balances expertise and affordability. Optimizing your trading strategy might help you rein in the fees you pay for each transaction and make the most of every dollar you invest. 

Neglecting Employer Contributions

Employers commonly offer matching contributions to your 401(k) or IRA. Some employers will match your contributions dollar-for-dollar, while others might match 50% of your contribution. Others rely on a formula that varies by contribution amount. 

Regardless of the setup, this is the only time in your life when you’re offered “free money,” and it would be a mistake to waste the opportunity.

If you’ve recently changed jobs, there may be a vesting period before you’re eligible for matching contributions. Otherwise, check with HR to learn about this program, including the amount, contribution limits, and other options. 

Start early. If you’ve only recently entered the workforce, it’s best to start your retirement savings now. Matching contributions amplify your investments, and a wealth management advisor can guide you in allocating your resources effectively for long-term growth.

Lacking a Withdraw Plan

Receiving money from your retirement account requires just as much strategy as putting money into it. That’s because traditional IRAs and 401(k)s have required minimum distributions (RMDs). 

Failing to account for these RMDs can potentially lead to major tax implications. That’s because, for traditional accounts, your RMDs will be taxed as income during the tax year you receive these withdrawals.

Additionally, the rules relating to RMDs are complex. Retirees must start taking these RMDs based on the year they were born, and withdrawals made before age 59.5 usually result in a 10% penalty in addition to ordinary income tax. 

Investors must understand these complexities and devise an appropriate withdrawal plan to handle their RMDs. Otherwise, their withdrawals could incur additional taxes and other penalties, depleting their savings accounts.

 If you’re unfamiliar with the retirement withdrawal process, it might help to speak to an advisor who can explain the rules and help you strategize for your future.

Failing to Establish an Estate Plan

If you think it’s enough to simply draft a will, think again. Saving for retirement means little if you have no plan for the legacy you eventually leave behind. 

Estate planning is about more than just designating beneficiaries and setting up trusts — it’s your final opportunity to invest your money into something that will literally outlive you, such as a charitable donation or an act of community service.

Without careful planning, your assets can be divided by your state’s intestate laws. Not only will your money not go where you intended, but it can also create family disputes. A financial professional can help you clarify your long-term goals and ensure that your family’s needs are met.

It also helps to revise your estate plan regularly. After all, the arrival of grandchildren might change the number of beneficiaries, and you may also wish to structure your will differently as your personal priorities or investment portfolio changes.

Face the Future With Confidence

Retirement planning is about more than just putting away money. Investors need a strategy for building and distributing wealth during retirement and beyond. Ty J. Young Wealth Management can provide invaluable advice on how to make the most of your financial resources and help you achieve greater confidence in your future.

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