Special Report

14 Mistakes That Can Wreck Your Retirement Plans

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4) Making poor retirement-fund option decisions.

Whether you invest for retirement in a 401(k), IRA or other qualified plans, some of these can be too limited or too general to help your retirement goals. The rise of target date funds — mutual funds that automatically reset the asset mix of stocks, bonds and cash equivalents in a portfolio according to a selected time frame for an individual investor — has helped to improve some of these efforts. However, many qualified plans leave workers without enough choices to make enough money to enjoy their golden years. Some 401(k) plans only offer a few broad mutual funds. Others offer dozens of choices. Some 401(k) plans allow for retirement savers to invest in ETFs, and some even allow for them to hold individual stocks. There is a real risk that if your choices are too few, fees along the way can wreak havoc if you have few options.

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5) Misallocating your retirement funds.

A company can set up a retirement plan, but it’s up to you to decide how to invest that money. Many companies won’t allow those who administer your retirement plans to make any recommendations at all. If you are in your 20s and decide that equities are too risky, you could invest in bond funds, but they compound at just 2% or 3%. Now consider the risks of being in your mid-50s and only investing in stocks — one major market sell-off or bear market might wipe out 25% or 50% of your retirement account with too few years to make it up. Some plans offer the simple “cash and money-market funds” for savers reluctant to pick stocks or bonds. However, these come with very limited returns. There is a saying: “Cash never rallies.”

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6) Not taking advantage of ‘catch-up’ rules.

You know that many people under-save for retirement, but did you know you can “double down” as you get closer to retirement? The federal government understands that you might have not saved in your 20s, 30s and 40s, so the IRS has provided catch-up rules. Starting at age 50, savers can start putting away more than the $18,000 maximum annual contributions in 401(k) plans and more than in traditional IRA and other IRA plans. These amounts can range from $1,000 to $6,000 a year in added contributions to allow you to save for your retirement. Most people earn more and are better at planning in their 50s than they were in their 20s.