Don't Make These Mistakes With Your Retirement Plans
BOSTON (CBS) - More Dumb Money Moves:
- Not taking advantage of your employer's matching contribution. The match is free money!
- Not contributing to your retirement plan because you don't like the choices. Even a mediocre plan is better than no plan especially if your employer matches.
- Choosing the "safest" investment without understanding that all investments have risk.
- Choosing the most aggressive investment thinking it will produce the greatest return.
- Basing your investment choices on what your friend has chosen for her portfolio.
- Putting all retirement assets into company stock. Not prudent to have more than 25-35% invested in company stock. Some experts will tell you at max 10% but try to tell that to the Apple employees. The risk here is that there is no diversification.
- Cashing out your retirement savings when you leave your job. Over 50% of plan participants take the money and spend it rather than roll it into an IRA. Let's say you have $5,000 in your retirement plan, the company is required to withhold 20% if you want to take your money out. So you'll get $4,000. And when you file your taxes you will owe a 10% penalty, which will amount to $500. If you had left that money in a tax deferred account for another 30 years and you got an 8% return, you would have had over $50,000.
- Not regularly checking account statements against pay stubs to be sure the account is being credited properly and your contributions are invested as selected.
- Making choices based simply on the number of funds. If the company offers 10 funds, you put 10% into each fund.
- Making investment selections for a retirement plan without taking into account what else you own. You should be looking at your aggregate portfolio including a spouse's retirement plan as well as your personal investments.
- Trying to time the market. This often leads to employees selling low and buying high.
