A long-term savings strategy like planning for retirement relies on small steps taken over an extended period of time. Make sure you're on track by avoiding these common mistakes.
Underfunding Retirement Accounts
Are you among the 71 percent of Americans who aren't putting enough away for retirement? The most effective determining factors of a well-funded retirement are how early you start and how much you save. Aim to contribute the maximum amount allowable into your retirement accounts each year. If that's a stretch, commit to increasing contributions to retirement accounts any time your income climbs, whether it's from annual raises or salary boosts when you change jobs.
Ignoring Tax Ramifications
If you're early in your wealth-building journey or you anticipate a lower-than-usual income this year, it may be worthwhile to take advantage of your lower tax rate and make Roth contributions in your retirement accounts. Just make sure your employer-sponsored retirement plan has a Roth option. If your income disqualifies you from making Roth IRA contributions, consider Roth conversions.
Concentrating Your Investments Too Narrowly
Many Americans who held most of their funds in a single company or sector of stocks learned this harsh lesson during the dot-com bubble. When the bubble burst between 1999 and 2001, so did a portion of those portfolios. And the same concern goes for tying up the bulk of your wealth in your principal residence. Not only is it time-consuming and costly to convert a home to cash, but you'll also have the added stress of finding a new place to live. Diversification is key to avoiding this mistake.
Whether retirement is a few decades away or just around the corner, the goal is to make steady progress in the right direction as you prepare for life after work.