Having a financially secure retirement is a top priority for everyone. If you can avoid the simple mistakes that millions of people make in their financial planning, it'll take you a long way toward realizing your dreams of a happier retirement.
A dire picture
Unfortunately, for those who are already approaching retirement, a lot of damage has already been done. According to a study from the Employee Benefit Research Institute, even covering basic retirement expenses and uninsured medical costs will prove beyond the ability of nearly half of those currently within 10 years of retirement. As many as two-thirds of low-income workers will likely run out of money in the first decade after they retire.
Even if you've gotten a late start with your retirement planning, it's never too late to take action that will make a big difference in your standard of living after you retire. If you're making mistakes like the following, fixing your finances can produce significant results much more quickly than you might think.
1. Not investing enough, especially in tax-favored retirement accounts
In planning for retirement, the amount you save now is the only thing you have 100% control over. But many retirement savers don't realize just how much they can set aside.
Tax-favored accounts like 401(k) plans and IRAs are often your best choice for retirement savings. With limits of $16,500 for 401(k)s and $5,000 for IRAs this year, you have a lot of freedom to enjoy tax-deferred growth. And for those age 50 or over, catch-up provisions give you even higher limits: $22,000 for 401(k)s and $6,000 for IRAs.
That may sound like a lot, but the last years of your career may be the most productive from an income standpoint, while expenses may actually decrease as children grow up and leave home. If you commit to saving a bundle in the years immediately before you retire, you can make up for a lifetime of missed opportunities.
2. Panic-selling solid stocks
It's always scary when a stock you own drops a lot. But selling after such drops often proves to be a terrible mistake when the stocks inevitably recover.
You can find plenty of examples of this from past experience. In 2008, Starbucks
Similar situations appear every day. Yesterday, Adobe Systems
3. Putting all your eggs in one basket
The biggest asset most people have is their earning potential. Since you rely on your employer for your income, it's a mistake to double your exposure by owning employer stock in your 401(k).
Unfortunately, lots of people do exactly that. According to figures from BrightScope, 65% of ExxonMobil's
When problems come up, they can be disastrous. For Valero Energy
These mistakes are common, but they're also easy to avoid. If you take care not to make them, it will help you protect your retirement from the threats that so many won't see until it's too late.
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Fool contributor Dan Caplinger has learned from countless mistakes. He doesn't own shares of the companies mentioned in this article. Green Mountain Coffee Roasters is a Motley Fool Rule Breakers pick. Adobe Systems, Ford Motor, and Starbucks are Motley Fool Stock Advisor recommendations. The Fool owns shares of and has written covered calls on Procter & Gamble, which is a Motley Fool Income Investor pick. The Fool owns shares of ExxonMobil. Try any of our Foolish newsletters today, free for 30 days. There's no mistaking the Fool's disclosure policy.