10) Chasing fads and hot trends.
Retirement savers know their money has to grow over time. While misallocating one’s funds is one risk, there is an even greater danger by chasing hot fads and sectors. There are now enough mutual funds and ETFs that target only certain sectors or specific stocks that it’s easy to forget about being too concentrated. Chasing the dot-com bubble by investing in internet stock funds at the peak in 2000 could have generated an investor 80% losses, and that investor might not have broken even until 2015. Now think about other recent fads pursued by investors — rare earth metals, 3D printing, alternative energy, emerging China stocks, genomics, stem cells, fertilizers, and on and on. It’s easy to see some sectors fall and some may never recover.
11) Failing to understand how Social Security works.
Many people do not understand how Social Security works. It is important to know how the monthly payments are calculated and what retirement age you are really looking at. Social Security is based on your income over the course of your life and you pay for it every month. Retirement does not necessarily start at 65. Some people can elect to start receiving Social Security benefits at 62, but that comes with big restrictions and lower payments. Some people can delay until they are 70 if they want higher monthly payments. Using the simple Social Security calculator can give you insight into how much you can expect to get per month from your lifetime of contributions for your golden years. The rules around eligibility and/or age limitations may change drastically in the years ahead. Not knowing what your benefits will be can seriously hamper your retirement planning.
12) Not taking into account the unexpected.
Life is great when you are healthy and gainfully employed. Some employers are very understanding and supportive when workers get sick or injured on or off the job. But some are not. If you get hurt on the job, you might have recourse or some assurances. But if you get injured hiking, biking, driving or playing sports, it could interrupt your income and retirement plans. Chronic diseases such as cancer, diabetes, and other illnesses might take you out of the workforce. Savers also should be alert to politicians from both political parties making potentially harmful proposals about retirement funds, such as limiting contributions to 401(k) and IRA plans that can wreck retirement planning.