Never rebalancing. Cashing out your savings. Forgoing tax planning. These are just three of the ten biggest retirement mistakes that could leave you with a ghost of a retirement portfolio. Take action now to help avoid these retirement missteps.
1. Failing to Diversify Your Portfolio
Diversification can help put you in the driver’s seat in terms of steering your portfolio toward a comfortable retirement. As Investopedia notes, “Diversification is the most important component of reaching long-range financial goals while minimizing risk.”
Portfolio diversification involves assigning assets to different silos. For instance, you might earmark some of your portfolio for stocks and similar financial products, with the rest spread among bonds, cash, and alternative assets like gold. Diversification might include placing a share of your assets in a 401(k) or IRA.
How you allocate portfolio assets depends on your financial goals and needs, as well as your risk tolerance.
2. Putting Your Faith in Trendy Assets
Sure, cryptocurrency attracts a ton of attention. But because it can be highly risky and has seen a lot of volatility, it might not be the best option for your retirement portfolio. The latest, and often, trendiest, type of cryptocurrency is just one of many assets that could burst onto the scene as a fad but then fade away.
Forbes explains that the biggest risks with cryptocurrency are that it’s intangible, illiquid, and uninsured. Forbes notes that the intangible and illiquid nature of cryptocurrency hampers its “convertibility and insurability.”
To make matters worse, cryptocurrency scams have soared in recent years. The Federal Trade Commission reported in May 2021 that nearly 7,000 Americans had lost more than $80 million to cryptocurrency scams since October 2020.
3. Not Rebalancing Your Portfolio
It might be tempting to take a “set it and forget it” approach to your retirement portfolio, but you could pay the price for that approach in the long run.
Rather than heading down the “set it and forget it” path, you should periodically review the weighting of assets in your portfolio. For instance, maybe you feel like it’s time to lower your stock allocation from 50 to 45% and bump up your allocation toward gold from 10 to 15%.
You might choose to rebalance your portfolio if your asset strategy has shifted or your risk tolerance has changed. Life events that commonly prompt a portfolio rebalancing include marriage, separation or divorce, getting a new job, job loss, a new baby in the family, and the death of a loved one.
4. Not Setting Aside Enough Money for Retirement
A 2021 survey of American workers over age 40 revealed an unsettling truth about retirement savings: 51% have saved less than $50,000 for retirement, and 57% have saved less than 10% of their income for retirement. The Insured Retirement Institute conducted the survey.
“Retirement saving behavior does not support the retirement income expectations of many workers,” the Institute points out.
To help avoid financial disappointment down the road, it’s wise to commit now to boosting your retirement savings if you realize you’re running behind.
5. Piling up Debt
Amassing mounds of debt can be a significant financial mistake, severely hindering your ability to build a retirement portfolio adequately.
Data compiled by the Experian credit bureau found that in 2020, Americans ages 41 to 56 carried $32,878 in debt other than mortgages. The same data point for Americans ages 57 to 74 was $25,812.
“Carrying consumer debt into retirement will either reduce the monthly cash flow available to spend on priorities like healthcare, travel, and leisure activities or will necessitate drawing down retirement accounts faster than planned, creating the possibility of running out of money or facing significant lifestyle changes to make ends meet,” according to financial services provider MassMutual.
6. Wiping out Your Savings
Yes, it’s enticing to spend your savings on an end-of-year tropical vacation. But how will that help you when it comes time to retire? (Hint: It won’t.)
While recommendations on how much money you should keep in savings vary, you might consider stashing 10 to 20% of your portfolio in an interest-bearing account. At the very least, experts suggest setting up an emergency fund with enough cash to cover three to six months’ worth of your everyday expenses.
7. Signing up for Social Security too Soon
If you were born in 1960 or after, you’ll receive 100% of your Social Security benefits if you retire at age 67. But if you put off claiming Social Security benefits until age 70, you can claim 124% of your benefits.
In other words, waiting just three years to receive Social Security benefits can pay off handsomely.
8. Taking Money out of Your 401(k)
Unless you need the money for an emergency, borrowing from your 401(k) could make for a less-than-happy retirement. Why? Because you typically must pay interest on a 401(k) loan, according to Kiplinger. Translation: You’re depriving yourself of money that could grow over time.
9. Overlooking Estate Planning
Estate planning may sound like it’s only for ultra-rich folks, but that’s not the case at all.
“Estate planning is important for everyone, no matter their age or wealth. Estate planning avoids taxes and legal tie-ups and ensures funds are bequeathed as you wish. An estate plan appoints the right people to take care of your kids, even if you’re incapacitated,” the Insider news website explains.
You can do yourself—and your heirs—a favor by creating an estate plan that puts your financial house in order. Sadly, only 22.5% of Americans ages 35 to 54 and just 44% of Americans age 55 and over had estate-planning documents in 2021, according to a Caring.com survey.
10. Not Coming up with a Tax Plan
In tandem with estate planning, you should focus on tax planning. Simply put, proper tax planning enables you to pay the lowest amount of taxes possible. An effective tax-planning strategy might include opening a tax-advantaged IRA (perhaps even a gold IRA).
“In addition to saving people money, tax-planning strategies help taxpayers avoid tax penalties, get the most from their tax deductions, keep their financial documents organized, and plan for the future,” Maryville University says. “By contrast, doing no tax planning takes money away from life’s other necessities by increasing tax bills unnecessarily.”
When it comes to diversification with precious metals, U.S. Money Reserve is here for you. Contact U.S. Money Reserve for a free one-on-one consultation today.