One of the sad realities of life is that, so often, we get in our own way. Chances are that, at some point, you've sabotaged yourself — and your finances — by your actions.
It's one thing to try to recover from past mistakes.
But what if you are actively sabotaging your future right now?
What if your choices now will ruin your retirement later?
If you want to retire comfortably, it's vital that you make it a point to avoid sabotaging yourself with what you do now. This means that you need to examine yourself and avoid these 7 actions that will ruin your retirement:
1. You Haven't Performed a Needs Assessment
The Employee Benefits Research Institute (EBRI) assesses retirement attitudes each year. The 2014 report on retirement confidence finds that 56 percent of Americans haven't even attempted to calculate what they will need in retirement.
How will you know what to save if you don't know what you'll need?
Chances are that you aren't adequately prepared for retirement if you haven't performed the calculation. One of the best things you can do for your future is to take the time to look ahead, and consider your retirement needs. Remember to account for general inflation and rising health care costs.
2. You Aren't Saving Enough
If you're putting aside $100 or $200 a month, chances are that you aren't saving enough for retirement — unless you started when you were under the age of 20.
Unfortunately, many investors think that they are taken care of with a monthly contribution of $200. This just isn't the case. If you want to ensure that your money outlasts you, you need to have a realistic view of how much you should save, and make it a point to boost your monthly contributions.
3. Neglecting Asset Allocation
Make sure that your portfolio is properly balanced. Consider your risk profile, and then match your asset allocation to your needs. Once or twice a year, review your portfolio and rebalance as needed. Your portfolio should contain an appropriate mix of stocks, bonds, gold, and real estate.
You can use funds to achieve this, mixed with hard assets. Everyone's ideal portfolio composition is different, but there is always the chance that yours will get off track. Do an asset allocation check regularly to ensure that your portfolio is balanced the way you prefer.
Learn how you can diversify your retirement plan with a self directed IRA by clicking here.
4. Focusing Too Much on Asset Allocation
It's true that asset allocation is one of the important factors associated with retirement success. However, if you haven't built up your nest egg, asset allocation isn't as important as you might think. The Center for Retirement Research at Boston College found that asset allocation doesn't matter as much if you aren't prepared for retirement in other ways.
According to the research, your Plan B might include working longer, taking a reverse mortgage, or controlling your spending. Don't focus so much on asset allocation that you lose site of other options. And remember that you might need a Plan B if the market drops just before retirement.
5. Relying Too Heavily on an Employer
When you rely heavily on your day job for your financial wellbeing, you are asking for trouble. First of all, you could be laid off and lose your main source of income and be unable to contribute to a retirement account. Additionally, if your employer's retirement plan isn't very good, you might lose out on that end as well.
Instead of relying heavily on an employer, look to yourself. Cultivate income diversity with a side business, investment income, or other sources. That way, you'll nearly always have money to contribute, and you won't be at your employer's mercy.
6. Paying Too Much in Fees
According to research, a two-income household can miss out on $155,000 for retirement, thanks to fees. And that's just 401(k) fees. Imagine if you are over-paying in expense ratios on funds, and paying too much for other fees. Part of the reason that number is so high is due to the missed opportunity. If that money isn't staying with you, you aren't earning interest on it.
Look for low-cost retirement plans and look for low-cost investments to keep in your accounts. You don't want to lose out to fees.
And don't forget about fees that come with trading too much. Frequent trades can not only help you lock in losses just before a rebound, but the fees you incur can further eat into your returns. Your trades should be made carefully.
7. Failure to Plan for Taxes
Don't forget to plan for taxes. Too many people forget about how taxes can impact retirement outcomes. While you can't predict everything about the future of taxes, you can make some assumptions — one of them being that taxes will likely go up.
It can help to sit down with a tax professional and figure out what you can do now and later to minimize the impact of taxes on your retirement portfolio and income, as well as how you are impacted now. It is also a good idea to think about how you will withdraw money from your retirement accounts in a tax-efficient manner.
Don't let these mistakes ruin your retirement. Plan ahead so that your retirement is as good as it can be.
Many individuals prepare and save their entire life in preparation for retirement not realizing that it could be in jeopardy by taking the wrong actions as mentioned above. Diversification is key in order to mitigate your risk of losing all of your savings in one fail swoop. The way you can do this is with something called a Gold IRA. Learn how you can set one up here.