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Five Mistakes Retirement Investors Make

Everyone knows it’s important to save for retirement. And many people are trying to make wise decisions and prepare well. So how is it that so many investors get to retirement only to find they’re far from ready? Unfortunately, five easy-to-make mistakes can often create pitfalls for many investors.

  1. Setting up an account and forgetting it. Many investors start off right and enroll in a retirement plan. But it’s what they do (or don’t do) next that’s a mistake. After setting up their account and determining a certain amount of their income for monthly contributions, they rest easy and never make adjustments again. So while enrolling in a retirement plan is a good first step, it’s equally vital to review investment allocations and increase contributions regularly to have the best chance of reaching retirement income goals.

  2. Not starting early enough. A lot of people are going to prepare for retirement — just not yet. They feel they have plenty of time to invest later, but the truth is that starting early can potentially make the largest impact on your retirement account in the future. Consider this: if you assume a 6% average return, a 25-year-old investor would need to invest $250 per month to have $500,000 at age 65. If he waited until age 35 to begin investing, he would need to invest $500 per month to reach that same $500,000 goal at age 65. The younger you start, the more the compounding effect of money over time works in your favor.

  3. Allocating inappropriately. How far are you from retirement and what level of risk is appropriate for you? These two questions can easily be overlooked, but both play an important role in creating the appropriate allocation for you. In addition, you need to consider things like your savings target, income requirements and lifestyle expectations during retirement. This will help you get a better understanding of how much risk you need to take to reach your retirement goals. Then, you can diversify your portfolio in a way that meets your objectives. Learn more about GuideStone’s portfolio models. Your MyGuideStone® account provides a place for you to evaluate your asset allocation and utilize tools to determine the allocation that best fits your needs.

  4. Taking a retirement account loan. When money is tight and unexpected expenses creep up, it can be tempting for investors to take a loan out on their retirement accounts to alleviate financial strain. The problem with a retirement account loan in a pinch is that the money you've taken out as a loan isn't invested in the market, which means you could be missing out on substantial growth opportunities over time.

  5. Not knowing retirement income needs. For many people, planning for retirement is like taking a stab in the dark. They save money, not knowing whether it’s enough or how much they’ll need in retirement income. However, with tools like GuideStone’s Preparing for Retirement resources, you can estimate a retirement budget for things like food, transportation, housing, medical expenses, utilities and taxes.

The ability to afford adequate medical care can greatly affect the quality of your life in retirement. So, you will also want to consider the cost of supplemental insurance plans, Medicare Part D and Part B as well as Medicare alternatives. Learn more through GuideStone’s Medicare 101.

Since the average American spends more than 20 years in retirement, doing all you can to have adequate income during those years is crucial. Avoiding these (and other) pitfalls while proactively managing your retirement account to keep it in line with your goals can go a long way in helping you to stay on track toward a comfortable retirement.

To help you create a custom financial plan, please utilize our Home Budget Calculator.