Personal Finance Essentials
Common Mistakes to Avoid
Too Conservative Too Early. Wrong Tax Assumptions. No Emergency Fund.
Are You Making These Retirement Mistakes?
Several patterns appear consistently among people who fall short of their retirement goals.
1
Investing too conservatively early in life
Many younger investors put their retirement savings in money market or bond funds out of caution. But for money that will not be touched for 30 or 40 years, the greater risk is inflation. Stocks have the best long-term record of outpacing it.
2
Assuming a lower tax bracket in retirement
Many people contribute to traditional IRAs and 401(k)s under the assumption that they will pay less in taxes when they retire. But your expenses in retirement are not necessarily lower, and required minimum distributions may push you into higher brackets than expected.
3
Treating your retirement account as an emergency fund
Retirement accounts can be temporarily frozen during extreme market disruptions. Your retirement savings are not accessible cash. A separate emergency fund – outside of retirement accounts – is essential.
4
Using home equity to pay for college can also derail retirement
Borrowing repeatedly against your home to fund education can push your mortgage payoff date well past your planned retirement. Parents who made this mistake may not pay off their home until they are in their 80s – 20 years after they planned to retire.
5
Viewing life insurance as a retirement investment is a mistake that is aggressively marketed but rarely appropriate
Insurance is important for what it does best: protecting against risk. It is almost never the right tool for retirement savings when you have access to a 401(k) or IRA.