Common Retirement Account Mistakes
If you’re contributing to your retirement account you’re already one step ahead of the rest. Since we don’t know how much, if any, social security benefits will be available when we retire we should look to fund our own retirement. Since we can’t expect to win the lottery the best way of having enough money at retirement is by saving a little bit from every paycheck and investing it in a retirement account.
But it’s just not as simple as that. If you’re not careful with how you invest your money, your retirement may be in jeopardy. Here are some mistakes that people make with their retirement accounts:
You Don’t Have One
The biggest mistake you can make with your retirement is not having a retirement account in the first place. With the programs that are at your disposal, there’s no good excuse not to make contributions to a 401k plan. Some employers may even give you additional money on top of what you contribute to your retirement account. Even if they don’t, it’s imperative to have one.
You Didn’t Start Early
The trick to having a very big retirement account when you’re at retirement age isn’t to put lots of money in the account. The trick is to start early. You should begin saving for your retirement as early as possible. One of the benefits of a retirement account isn’t that it’s an account where you save your money at, it’s the interest it earns. Because of the compounding interest your account will make, that retirement account will continue to grow exponentially. The best part of the interest is that you won’t pay taxes on it if you don’t take the money out early.
Risking Too Little
Another mistake you can make with your retirement account is not being a risk taker, especially if you are young. With risk, comes great reward. If you’re in your 30’s you can afford to take greater risks with your retirement money. Of course this means you shouldn’t be reckless, but you can take a few more gambles with your money at a younger age than you would if you’re near retirement. After all, the goal of your retirement funds is not just to save, but to invest it as well.
Keeping Your Eggs In One Basket
In order to ensure that you don’t lose any of that hard earned retirement money you will want to make sure you make smart investments. One way to do that is to spread your risk out. You’ll want to avoid investing all your money into your company stock for example, regardless of what incentives are offered. While some stocks will go down, others will go up, so be well diversified so that no matter what happens you’ll end up in the black.
You Took It Out Too Early
One of the worst things you can do with your retirement account is to borrow against it. There are stiff penalties for doing this so you’ll want to make sure and avoid them. Don’t think of the money in your retirement account as your own personal piggy bank. This is money that is intended to be used in your retirement years and never before that time comes.