It's never too early or too late to start saving for your retirement. There are many common mistakes that can be made when it comes to planning your retirement.  Whether retirement is many years away or just around the corner, avoiding these mistakes will help you maximize your retirement investments. 

 

Mistake #1: Not Saving Money for the Future

 

Save money early and often. You may not retire rich, and you may have to work longer than you originally intended, but you'll be better financially prepared for your later years if you start putting money away today. Make it a priority to regularly invest money for retirement.

 

Mistake #2: Not Assessing Your Current Financial Situation

 

When you decide to start saving more for retirement, input your financial numbers into an online retirement calculator. Don’t be discouraged if you see a gap between your net worth and what you should have a few years down the road. It's true that you probably won't be able to catch up to the amount you would have earned had you started saving more at the start of your career, but you can take the right action today by assessing your current financial situation and determining how much you'll need in the future.

 

Mistake #3: Becoming Involved in Risky Stock Investing and Get-Rich-Quick Schemes

 

To make up for lost time, many people end up chasing stock performance and making poor financial decisions to compress the wealth-building process. A good financial advisor and some online research can help you determine the appropriate level of risk for your needs.

 

Mistake #4: Not Planning for a Long Retirement

 

The good news is that people are living longer, but it takes more money to fund those additional years. Many people are retiring from primary employment before age 65 - if you're 40 years old, don't assume that you'll retire in 25 years. When saving for retirement, assume that you will live well into your 70s or 80s, and plan accordingly. 

 

Mistake #5: Making the Wrong Investments

 

Taking too much risk can be bad for your financial health, but not taking enough can be just as risky. Making the wrong investments could cost you thousands of dollars in the long run. To demonstrate, apply the Rule of 72, an equation used to determine how long it will take to double your money. Based on the formula, if you have an investment that earns 5 percent interest, divide 5 into 72 and you'll come up with 14.4 years. On the other hand, it would take only 6 years to double your money at a 12 percent interest rate.

 

Mistake #6: Not Asking the Right Questions

 

Ask yourself some key questions: What am I trying to accomplish financially? How much time do I have to accomplish these goals? What is my strategy to make sure I meet them? Take a close look at your current financial situation and identify your existing and future sources of income. Do you have a 401(k) or an IRA? Does your company have a pension plan? Continue to investigate and evaluate your financial situation as you move toward your goals.

 

Mistake #7: Not Taking Advantage of an Employee Retirement Plan

 

If you work for a company with a 401(k) plan, then take advantage of this “free money” benefit. Consider contributing to your 401(k) or IRA with a payroll deduction or automatic investment. Review your retirement plan carefully and maximize this investment. If your employer offers matching contributions to your 401(k), take advantage of them.

 

Mistake #8: Investing Entirely in Your Employer’s Stock

 

There’s no guarantee that investing in company stock will help your financial assets in the long run. Examples like Enron and Bear Stearns show that company performance and corporate missteps can have catastrophic consequences when it comes to your retirement dollars. Financial experts recommend that you not invest more than 20 percent of your income in company stock.

 

Mistake #9: Failing to Look at Your Household's Complete Financial Profile

 

If you and your spouse have mutual funds with the same company, you may be putting your financial future at risk—particularly if you both hold some of the same investments. If the same person manages both of your funds and that person leaves the company, you'll feel the financial hit twice if the performance of your mutual funds suffers as a result. Identify any investment overlaps, and then take action to spread out your risk. Don't invest all your money in one sector or stock, and pay attention to how your 401(k) or IRA dollars are allocated.

 

Mistake #10: Borrowing from Tomorrow to Pay for Today

 

It may be tempting to tap your 401(k) or IRA for extra cash if you're facing foreclosure or other financial pressures. This can create long-term problems that cost you more money in the long run. Taxes for early withdrawal are high, and with the added penalty for early withdrawal, you'll probably only receive 50 cents on the dollar. So if you take out a $10,000 loan from your 401(k), you're really only getting about $5,000. Using the Rule of 72 and assuming a rate of 9 percent interest, that $10,000 likely will double in 7 years, be worth $40,000 in 14 years, and $80,000 in 21 years. Leaving money in your 401(k) or IRA untouched is usually the best choice for long-term financial health.

 

 

Additional Resources:

 

• National Endowment for Financial Education:  http://www.smartaboutmoney.org
• U.S. Securities and Exchange Commission’s Financial Facts Tool Kit:  http://www.sec.gov/investor/pubs/toolkit.htm
• AARP’s Web site on Financial Planning and Retirement:  http://www.aarp.org/money/financial_planning/