Don’t Make These Retirement Planning Mistakes
Here are some common mistakes people make:
Failing to start: It’s amazing how many people find excuses that keep them from starting to save for retirement. But no matter how daunting debt, college, or other spending priorities seem, you have to save for retirement on a regular basis, even if it’s a relatively small amount. Over time, those small assets will grow to something considerably larger.
Failing to link planning for your at-work and personal retirement portfolios: One of the critical problems in retirement planning comes from failing to treat the investments you make at work and the ones you make independently as a unified whole. Working with a financial planner can help you look at every place you’re putting your money and determine whether you’re implementing those assets in the right way.
Failing to evaluate a prospective employer’s retirement options: Benefits can be worth as much as a nice paycheck. It’s possible you might be working for a company that still offers a traditional defined pension benefit plan in addition to a 401(k) plan. If you think you’re going to get an offer, it’s wise to interview prospective employers on the benefits side of what they’re offering you – particularly the timeframes on when those various benefits kick in. Above all, company matching of any assets you place in your retirement funds is key as well as the vesting period for making those assets your own.
Failing to consider both kinds of IRAs: The biggest difference between a traditional IRA and a Roth IRA is the way Uncle Sam treats taxes on both types of investments. If you put money in a traditional IRA, you’ll be able to deduct that contribution on your income taxes. In a Roth, you don’t receive the tax deduction for those contributions, but when it’s time to take the money out, you won’t have to pay taxes on it. If you and your spouse are not covered in workplace plans, you may be able to fund fully deductible IRAs. Talk to a tax professional or a financial planner about which options are best for you.
Failing to reinvest your tax refunds: Did you know you could deposit your tax refund directly into your IRA? It works for a health or education savings account as well. While many people use their tax refund as a bonus to buy a treat or pay off bills, consider filing your taxes a bit early and arrange to e-file a direct deposit to your IRA so you can note that deposit for the 2007 tax year by next April 15.
Failing to contribute the maximum: Not every employee can afford to contribute the maximum allowed by their respective work retirement plans or individual retirement investments, but it should be a goal.
May 2008 - This column is produced by the Financial Planning Association, a membership organization for the financial planning community, and is provided by Blue Water Capital Management, LLC.