Investor Education | Four retirement mistakes you can fix

We are all human, and we all make mistakes, but some errors are more damaging than others. For instance, as you plan for your approaching retirement, certain mistakes may come back to haunt you later on. Here are four common slip-ups and what you can do now to change things.

Mistake #1: You save too little and too late. This is probably the biggest mistake you can make. If you have not accounted for estimated needs in retirement, it will be difficult to make up for lost ground. Also, consider that life expectancies have generally been increasing in recent years, mainly due to health care advances. Your money may have to last longer than you expected.

Fortunately, you can still step up contributions to qualified plans, such as 401(k)s and IRAs, while you are working. The limit on deferrals to 401(k) plans in 2017 is $18,000 ($24,000 if you are age 50 or older) and $5,500 for IRAs ($6,500 if age 50 or older). If necessary, you may have to work a little longer than you planned.

Mistake #2: You fail to diversify. The rate of return on your investments is important, but it is not the be-all and end-all. In the end, you might be hurt if you simply chase after high rates of return, especially if the stock market goes into a prolonged slump prior to your retirement. Adopt a long-term plan that emphasizes such fundamentals as asset allocation and diversification. Although these strategies are not guarantees against loss of principal, especially in a declining market, they can provide less exposure to risk than you would face if you were to sink all your money into just a few offerings.

Mistake #3: You forget about taxes. This can backfire in two ways. First, you may be missing opportunities to reduce taxes while you save for retirement. For instance, contributions to a 401(k) effectively lower your tax bill, while pay-ins to traditional IRAs may be wholly or partially deductible, depending on your income and whether you actively participate in an employersponsored plan.

Second, consider the tax implications of amounts received in retirement. Generally, income from 401(k)s and traditional IRAs is taxed at ordinary income rates. If you receive payments from a Roth IRA, however, the amount may be taxfree. Note: Congress is debating reforms that may affect the tax law.

Mistake #4: You stop saving and investing in retirement. When you finally stop working, you may have saved and invested enough to start your retirement with a comfortable lifestyle. But retirement planning should not come to a grinding halt just because you are no longer working full -time.

This is an ongoing process. Optimally, you can avoid mistakes like mismanaging a portfolio and can tweak your plan as needed. Remember that longer life expectancies may result in outliving your savings, despite your best intentions.

Finally, one last mistake is failing to seek professional guidance. Your professional advisors can help you develop a plan for the long term that sidesteps pitfalls that might trip you up while saving for retirement. Do not wait until it is too late.

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