5 Ways You May Be Sabotaging Your Retirement

There’s a lot of information out there these days on retirement income planning. Everybody is offering advice, and a lot of it is really good.

Yet it seems that no matter how much information is out there, people are still hitting retirement with little or no preparedness at all. Here are five of the most common ways people are sabotaging their retirement.

1. Jumping in Without a Plan

It’s one thing not to have a financial plan when you’re 25. At that point, your financial plan is to simply save as much as you can. It’s completely different when you’re 55.

The closer you are to retirement, the more you need a financial plan. Without one, you can’t know if you’re on track. And if you don’t know where you stand, you’re just throwing money at your investment account. That’s not the worst thing you can do (it’s better than not throwing money at it, which we’ll touch on next), but you can do better.

Your financial plan doesn’t need to be a massive 200-page document. It just needs to identify where you are today, where you want to be, and how you will bridge the gap. The more specific you get, the better, but even a basic idea will put you ahead of almost everyone.

2. Saving “Something”

One of the most dangerous retirement savings plans is to just save “something.” People often do this because saving nothing makes them nervous (rightfully so), so they put away some arbitrary amount to calm their nerves.

The problem is they don’t know how much money they’ll actually need in retirement, and now that they’re saving something, they’re even less motivated to figure the actual number out. As you might guess, this doesn’t lead to a great retirement.

A common rule of thumb for retirement savings is to put away 10-15% of your pre-tax income. But, again, you can’t know how much you really need to save unless you have a financial plan in place.

3. Risking Too Much – Or Too Little

Everyone is comfortable with different amounts of risk. Some people sleep just fine with an aggressive portfolio. Others are nervous about whether there’s any possibility that their portfolio could lose value. You need to find the right level of risk for you. If you have too much risk, you’ll almost assuredly panic and sell just when you shouldn’t – and lock in all of your losses.

On the other hand, you don’t want to be too conservative, either. If you’re overly conservative, your assets may not grow enough to meet your desired goals. Alternatively, you may never be content with your returns, and you’ll be constantly tempted by whatever shiny thing the financial media is talking about this week.

You want to find your "Goldilocks" portfolio that best aligns with your goals. This will help you ride out the bumps in the road (even the really big ones) and harvest the long-term returns you deserve.

4. Being Too Generous with Uncle Sam

Taxes are a fact of life. You have to pay them, but you don’t have to pay more than is required. Most investors ignore ways to minimize their taxes (like asset location and tax loss harvesting), but they also increase their taxes by trading too much or misunderstanding the tax implications of trading decisions.

You should also minimize your taxes outside of your investment accounts. Is your income going to spike next year? Advance planning plays a vital role in minimizing your tax bill while still accomplishing your goals.

5. Getting Investing Advice from the Wrong Places

It’s not that the financial media is out to get you. They’re not – well, not intentionally, anyway. It’s just that they’re not in the business of retirement income planning. They’re in the business of selling ads.

To do that, they need your attention. Luckily for them, it’s pretty easy to get investors’ attention. All they need to do is either yell about how this is the best time ever to invest or how the world is about to fall apart.

The financial media knows that people are nervous, and they use that to their advantage. But here’s the thing – you don’t need to pay attention to them. The world is a volatile place, so if you’re constantly on the lookout for danger, you can always find it. But, if history is anything to go by, you’ll have a much better investment experience by stepping back, turning off CNBC, ignoring financial advice on social media, and harvesting the long-term market returns.

Conclusion

When it comes to planning for retirement, you can either be your worst enemy or your best friend. If you can avoid these five mistakes, you have a good chance of being ahead of the game.