When it comes to retirement planning, one of the most challenging aspects is that there’s no right answer. Wouldn’t it be great for there to be one ‘best route’ to follow? Instead, everybody has their own ideas about the best ways to save, how much to save, and when to retire.
How do you get started when there’s no ‘right’ way to go? Well, it starts by learning the wrong moves. Regardless of your knowledge or experience level, we’re sure you want to avoid common mistakes from damaging your retirement, and this is why we’ve listed three of the biggest in this guide. Let’s take a look!
1. Forgetting Retirement Account Fees
You may know about the fees that come with investing in an IRA or 401k, but do you know the extent of these costs and how they will impact your retirement income? By confusing even 0.3%, you could miss out on tens of thousands, so this should tell you the importance of understanding retirement account fees.
Thanks to the Centre for American Progress and their recent study, we know that 1% of total assets managed is the average charge for a 401k. With $200,000 under management, this means you’ll pay around $2,000 each year. In the same study, it showed that the average worker pays nearly $140,000 in fees alone. However, this increases to $166,000 when the fee is increased to 1.3% – a significant increase.
If you’re unsure of what you’re paying, we recommend calculating the percentage based on your statements. Look at the expense ratio (this shows the percentage dedicated to fees) and talk to your financial professional.
If you’re paying more than you hoped, don’t panic. Firstly, those with employer matching contributions should keep their account until the full match is earned. You’re essentially getting free money, so don’t leave just because of the high fees. If not, there are cheaper retirement accounts out there. Again, talk with your advisor and find an IRA with smaller fees.
2. Forgetting Taxes
After years of not having to worry about tax with a tax-deferred retirement account, this will finally come back to haunt you in retirement if you forget about them and fail to plan for them. In both a traditional IRA and 401k, this is something that catches many off guard every single year.
As you withdraw more than planned each year, your funds won’t last for as long as you initially hoped. When you find that retirement is more expensive, there’s a risk of getting into a higher tax bracket, and your savings drain rapidly. Of course, we also mustn’t forget tax on Social Security benefits. At the state level, these taxes may apply depending on your location. Even after this, there are federal taxes on monthly checks if these surpass a specific point.
As soon as your combined income as an unmarried individual passes $34,000, there’s an 85% tax on all benefits. In this scenario, ‘combined income’ means half of the yearly benefits plus all other retirement income. For married couples, the same tax is applied at a threshold of $44,000 per year.
Many retirees find that there’s a significant chunk of their income that can’t be spent when it comes down to it. With income tax and state and federal taxes, those completely unprepared will get a nasty surprise when retirement finally comes.
3. Poor Choice of Financial Advisor
Finally, we’ve recommended talking to your financial advisor in this guide, but what if this very foundation itself is weak? What if you can’t rely on the advice provided by this professional? For those who choose to hire a professional, you realize that some will get a commission for selling specific investments and products. According to one report from the White House directly, Americans lost $17 billion in potential gains recently because these advisors chose to sell their own products rather than make decisions based on their best interests.
To make a good decision, the first step should be an assessment of their qualifications. Since the term ‘advisor’ isn’t monitored, you need to determine how qualified they are to look after your finances. In our opinion, it’s best to go for a CFP (certified financial planner) since they have a qualification and can only boast the CFP status after rigorous testing (which is maintained regularly).
Furthermore, there’s nothing wrong with asking an advisor how they’re paid. If they rely on commission, their monthly salary depends on what they can sell to clients – in other words, their motivation isn’t ultimately going to be your wealth. On the other hand, advisors can take a percentage of your assets or charge an hourly rate. We aren’t saying that a commission-based advisor can’t be qualified to handle your finances, but you still need to be wary and confident that they have your interests in mind.
Take Your Time and Prepare Well
There’s no universal solution for retirement planning, but there are simple mistakes that people make. We recommend choosing a financial advisor carefully, remembering taxes, and planning for retirement account fees. You can make the right decisions with a reliable and professional financial advisor and get the retirement you’ve been dreaming about for many years!
Contact Information:
Email: [email protected]
Phone: 6232511574
Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice filed, or is excluded from notice filing requirements. BWM does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision.
