6 Retirement Planning Mistakes (& How to Avoid Them)

No one ever said that planning for retirement would be easy. There are so many things to consider, and so many things that can get in the way. Retirement mistakes are all too common, and making one could set your  retirement off course.

Whether you are new to the workforce or are already dreaming about retirement, knowing about these potential pitfalls can help you save more and enjoy a more comfortable retirement.

1. Waiting to Get Started

The longer you wait, the harder it will be to save for retirement. It can be tempting to put it off, especially if you just started working, but keep in mind that it will only get harder as you get older.

Lots of things will get in the way as your career advances, from marriage and children to buying your first house. Making saving for retirement a priority from day one will make all other aspects of your financial life easier. Time is definitely on your side when it comes to saving for retirement. A 25-year old worker could retire a millionaire by saving just $200 a month. A worker who waits a few decades to get started would have to put away thousands of dollars every month to reach the same goal.

2. Not Ramping Up Your Contributions

The most important part of saving for retirement is simply getting started, and you can get started with very little money. Simply putting aside $20 out of every paycheck can get your retirement savings off to a great start.

As you progress, however, it is important to ramp up your contributions. One of the simplest ways to do that is to sign up for the automatic escalation program in your 401(k) plan. These programs automatically increase the percentage you contribute year after year. That creates a painless way to save and build a nest egg for retirement.

3. Failing to Set Specific Goals

Everyone has a different picture of what retirement will look like. Some people envision a lifetime of travel and adventure, while others would prefer to stay closer to home. Some people plan to work part time after retirement, while others want to enjoy a life of leisure.

Those different retirement scenarios require different goals, and all good retirement plans need to include those specific goals. It is not enough to come up with a ballpark figure. You need to sit down and plan your nest egg. There are plenty of retirement income calculators on the Internet. You can use those tools to determine how much you need to save before you can start thinking about retiring.

4. Fearing the Stock Market

This one is easy to understand. After all, the stock market has gone through a couple of scary declines in just the last decade. Those precipitous drops have been enough to scare many young people – who should be actively investing – away from the stock market.

At Alternative Investment Coach, we’re not anti-stockmarket, we simply try to educate people about the other opportunities that exist beyond stocks and shares. That doesn’t mean that the stock market itself can’t offer opportunities for the right kind of investor.

There is no reason for those with a decades-long time horizon to fear the stock market. While it is true that stocks can fall sharply, they can recover just as quickly. Many investors know that the stock market lost more than half its value in the Great Recession. What they may not know is that stocks have since recovered all that lost ground and gone on to record new all-time record highs. A well-diversified stock index fund should be able to weather the ups and downs of the stock market and come out on the winning end down the road.

5. Trying to Time the Market

Trying to time the market can be just as dangerous as failing to invest at all. Even experts, who are paid millions of dollars to predict interest rates and stock prices, frequently fail. Individual investors have almost no chance of timing the market over the long run.

Keep in mind that successful market timing means you have to be right not once but twice. You need to accurately identify the top of the market and sell all your stocks and mutual funds. Then you have to just as accurately determine when the stock market has hit its bottom and reinvest your cash. You may get lucky once or twice, but over the long term market timing is a losing strategy.

6. Borrowing from Your 401(k)

Borrowing from your 401(k) just might be the biggest retirement blunder of all. Taking money from your 401(k) can derail your retirement planning for decades. You may think that since you are paying the money back to yourself that taking a loan against the 401(k) is the best strategy, but that is rarely the case.

When you borrow from your 401(k), you stop your retirement planning in its tracks. You may not be able to contribute any more money until the loan is paid off. That means you miss out on all the money those investments would have made. If you have any other option at your disposal, you should use that option to get the money you need. Borrowing from your retirement plan should be an absolute last resort.

7. Failing to Diversify

Diversification should be an important part of your retirement planning strategy. Failing to diversify is one of the biggest retirement blunders, and it can happen at any time in the planning process.

Many young people fail to diversify by having too much of their money in safe investments. Young people have plenty of time to ride out the ups and downs of the stock market, so tilting heavily to stocks makes a lot of sense.

A lot of older workers make the opposite mistake. Many of those older workers have been investing in the stock market for years, and enjoying all those great returns. They may be reluctant to scale back that stock market exposure, even as they near retirement. Those pre-retirement workers could benefit from a rebalancing – taking profits from those stock market winners and moving the money into safer and more stable investments.

Elizabeth Goldman is the editor of AlternativeInvestmentCoach.com. She has written for Investing.com, Bullbearings.com and many others.