Think You’re Smart? Not if You’re Making These 5 Retirement Savings Errors

401(k) plan

Cashing your 401(k) is a big mistake. | GaryPhoto/iStock/Getty Images

Planning for retirement is a lot of things, and stress-free probably isn’t one of them. So much planning and so many factors go into forming a successful retirement that it’s hard not to lose sleep because of it.

Contributing to a 401(k) or Roth IRA is a good start. But a study by TIAA-CREF shows a third of people aren’t aware of their retirement investing options. Making mistakes on your way to retirement could force you to rearrange your plans, but those mistakes don’t have to be catastrophic. Here are five common retirement mistakes people make and how to avoid them.

1. Cashing out or not rolling over a 401(k)

In the old days, workers would remain with one employer for a lifetime and maybe earn a company-funded pension for retirement because of it. In modern times, switching jobs multiple times throughout your career is normal, and 401(k) plans have all but replaced pensions. And if you’re switching jobs, not rolling over your 401(k) funds is a big mistake. The only thing worse is cashing out your 401(k) and wiping out your retirement. Technically, there is nothing wrong with letting money sit in your old 401(k), but you could continue paying fees while not contributing anything.

Next: Help is on the end of the line.

The fix: Make a phone call, and transfer funds

businessman on cellphone

You can replenish your account. | Hugo Philpott/Getty Images

A simple phone call to your current 401(k) fund manager can help you get started on the road to a rollover. Typically, there are no fees for the rollover process. And in as little as two or three weeks the assets from your old fund will be placed into your new one.

Next: Money without a map

2. Not knowing where money is going

risk calculator

Know where your money is going. | iStock/Getty Images

Say you avoided mistake No. 1 and at least rolled over your 401(k) or started one up with your employer. That’s great. But do you know exactly what you’re investing in? Most plans have a litany of investment options — enough to make your head spin.

Next: Do you need gloves for this?

The fix: Get hands-on with funds

Business colleagues working together

Getting help from a financial adviser could put your mind at ease. | iStock/Getty Images

Luckily, the fix for this mistake is easy. Odds are your employer uses a fund manager to maintain its 401(k) accounts. Find them. Talk to them. Let them help you. A Secure Retirement Institute study finds more than 40% of pre-retirees who work with an investment manager feel more prepared for retirement than those who don’t, so it pays to talk with an expert.

If you’ve opted to manage your own retirement, it’s even more important to know the path your money is on. If you’re putting your money in a mutual fund, you might want to know how it works. Then, you’ll probably want to use some online tools to research the funds you’re interested in. And it wouldn’t hurt to take some advice from Warren Buffett, who often dispenses it for free.

Next: What’s with these fees?

3. Letting fund managers collect too many fees

woman with money

Know what your fees should look like. | iStock/Getty Images

There is no way of getting around paying fees to fund managers other than not using them at all. If you are working with someone to plan and manage your retirement, you will have to pay them. Yet MarketWatch cites a study that found half of all investors had no idea how much they were paying in fees each year.

Next: A little knowledge goes a long way.

The fix: Do your research, and know the fee structure

Businessman using a calculator

Do your research. | utah778/iStock/Getty Images

A little bit of knowledge will go a long way to helping you confront this issue. Check your account disclosures to find out how much of your 401(k) savings are going to investment fees. If you’ve hired an expert to help you out, know that there are several fee structures almost all financial advisers use. Knowing which one your adviser uses — and whether it’s the right one for your investing style and financial goals — is crucial.

Next: Make sure you take the lens cap off.

4. Not looking ahead wisely

Retirement planning written on a notepad

You need to be saving with retirement in mind. | designer491/iStock/Getty Images

Saving for retirement is basically a plan for your future. Yet the website GoBankingRates finds half of all Americans will hit retirement with nothing or next to nothing in their savings. Not saving enough or not saving at all are huge no-nos, but so are relying on social safety nets and not planning smartly. If you think you’ll be able to retire and step into another well-paying job to help cover your costs, chances are you’re wrong.

Next: Be smart about this.

The fix: Take time to make a smart plan

retirement plan documents with coffee

You can’t bank on Social Security anymore. | c-George/iStock/Getty Images

Planning for retirement is about more than stashing away your money. If you’re saving a little bit each month that’s good, but it’s probably not good enough. And if you’re planning on Social Security covering you or if you’re not taking inflation into account, you could be in trouble. Social Security’s ills are well-known and could worsen. And not taking inflation into account is a recipe for problems. After all, a gallon of gas in 1990 cost $1.12, while prices today are more than double that. The same holds true for most future costs.

To avoid this mistake, take a moment to make a plan and seek out help if you think you need it. A little bit of time now devising a path for your future could help you avoid some big headaches and let you actually enjoy your retirement years.

Next: Knowledge today to help you tomorrow

5. Not knowing how much you’re saving or whether it’s enough

retirement label on jar filled with coins

Try to save at least 15% of your income. | iStock/Getty Images

As a general rule, at least 15% of your income should go back to meeting your financial goals. Or maybe you’ve heard of the 50-30-20 rule. It’s where 50% of your income covers essential costs (housing, utilities, groceries, insurance), 30% is for discretionary costs (travel, cable, dining out), and 20% is for financial goals (paying down debt, saving for retirement). If you’re not saving 15%, or if you have no idea how much you’re saving, you’re making one of the biggest financial mistakes.

Next: Assess your status, and get to work saving right now.

The fix: Put away as much money as soon as possible

piggy bank

The sooner you begin saving the better. | iStock/Getty Images

As any financial adviser would tell you (and probably your parents, close friends, acquaintances, and Twitter followers, too) you should start saving for retirement as soon as possible. If you’re not saving at all or only saving a little, it’s time to get to work.

The easiest way to do that is to really analyze your budget to see where money from the 30% category can go toward the 20% category. As the website GoBankingRates notes, getting rid of debt and paying down your mortgage is a huge step. Maybe you don’t need that cable package costing you hundreds of dollars a month or the daily trips to Starbucks at $5 a pop. Every $5, $10, or $20 you can divert from frivolous spending to retirement savings will pay off in the long run.

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