Watch Out for These Retirement Planning Pitfalls

Once one has an established retirement plan several pitfalls should be avoided in order to help maintain the course established.

Pitfalls often come in the form of the owner of the account adjusting the account in order to try to increase the returns.  This often invites disaster.  It is difficult for the plan owner to maintain a level of objectivity about their account and how it is being handled.  That is why it is a good idea to allow professionals direct the plan and account activities.

Therefore some guidelines in handling a retirement account are in order.

No Loans. Do not take out loans against the account balance.  While this is a tempting way to realize an instant cash infusion, it also places your account at a disadvantage in that you will have to allocate a regular payment to the account to pay it back for the loan.  Once the use of the loan funds is over, and you are left with paying back the loan, it becomes easy to question the wisdom in withdrawing the funds in the first place.

Diversify. Do not try to “out-smart” the market by moving all of your money into one asset group.  Even the best investment professionals make unwise choices in the market that adversely affects returns on accounts.  To think that you can outperform them in this capacity is not wise.  One small move in the wrong direction can cause large losses in your account that will take a very long time from which to recover.  The philosophy of not “placing all of your eggs in one basket” applies.  It is good advice.

Even It Out. Balance risk with reward.  Even though a more conservative approach to investing may run contrary to your philosophy, a retirement account is not the place to take on huge amounts of risk.  Long term strategies must be dominant in order for the returns to be there when retirement arrives.  If you find it necessary to “play” the investment market in a risky fashion, it would be wise to set up a separate account just for that purpose.  That way, your retirement funds will not suffer if you make a mistake.

Recognize that gains and losses are a part of the process.  Ignore the knee jerk reactions to sudden or drastic market fluctuations.  The ebb and flow of market movements is normal.  Just recognizing this fact alone will help one to understand that a view to the long-term is the way to regard your retirement account.

Seek Advice. Consult the services of a professional for advice when it becomes necessary to move your funds due to job changes.  You will not want to place your account balance at risk by not handling these changes incorrectly.

Make it a normal part of your routine to watch your account with the understanding that it is working for you and will be there when you are ready to retire.