Retirement Mistakes Most 40-Year-Olds Make

Although this segment is titled “Retirement Mistakes Most 40 Year Olds Make,” I think you’ll find the information I’m going to cover beneficial whether you’re 30 years old or 60 years old. It’s really going to look at what are the issues when you’re planning and preparing for retirement? We’re going to look at you know retirement plan, contributions, how they work, 401Ks or 403Bs or other options you might have through your employer. We’re going to look at emergency funds. You know, do you have money set aside that you should in case of an emergency? We talk about diversification among your assets, both the asset classes, but also the types of accounts you hold. And we’ll look at investments outside of your 401K and then of course legacy planning and protecting your family in case something were to happen to you. So let’s start out first looking at 401K. One of the top mistakes we see people make when planning for retirement is not maximizing your 401K contributions. So whether you’re not contributing at all or you’re not maximizing it. And maybe you can’t. You know so we meet with some people and they’re not. Financially if they’re in a spot where they cannot maximize their 401K, I would recommend that you at least take advantage of your employer match. So many employers will match you know, 3%, 4%, 5%, 6%. If you can, do everything possible to at least get that match. Every dollar matters. So even if you can’t max out your 401K, as much as you can safely put in there, we would recommend that. Not having an emergency fund or at least not having an adequate emergency fund. This is another area where we see people miss the boat on their plans. So the importance of having an emergency fund is it keeps you from having to get into your retirement savings to pay for any kind of emergency and/or go into debt. So having to rack something up on your credit card. And when I mention emergency, I’m really thinking about your washer and dryer go out. Your refrigerator goes out. A major car repair. These are types of things that we look at as emergencies outside of the norm for your month to month situation. But yeah, so having that emergency fund, that could be maybe three months, I would say minimum, of income for your situation. And some people like to have much more than that. Some people are okay with a little bit less than that. But it’s very important that you have that adequate emergency fund for your situation. And another thing we think about is lack of diversification and/or lack of appropriate diversification within your investment portfolio. So of course, this involves proper asset allocation. And when I say that, you know a basic way to think about that is money split between you know holding some in cash, some in stocks and then some in bonds. So these are some of the basic asset classes. And when we look at this and when we look at this and we think about this with regards to your investment portfolio, you know you want to make sure that the way that you have that divided up among the asset classes, matches what’s appropriate for you age, but also what’s appropriate for your risk tolerance. And that’s something that you know, we see a lack of. People don’t understand that or don’t have that set up well in their own portfolio. Another thing we see, a lot of people as they prepare for retirement, mistakes they make is lack of investments outside of their 401K. So maybe you know that first point was not maximizing your 401K. So maybe you have a 401K. Maybe you’re contributing to that 401K and you’ve done a good job of doing that. Well another mistake we see is that clients don’t have anything outside of that. So they don’t have a Roth IRA. They don’t have a brokerage account, you know? And you might need stuff outside of your 401K to have the type of retirement you want. When I say stuff, I mean of course, accounts. Again, it could be a Roth IRA. It could be a brokerage account. But it’s important that you have these tools and that you use them to diversify outside of just the 401K through your employer. And then that’s something that we can help you with. And of course, that’s something that will give you more tax advantages. So there’s tax advantages now, obviously with your 401K, but we also need to think about on the end of that what that looks like when you take the money out. You know you can be taxed obviously on that. So having those other accounts, that Roth IRA or brokerage account gives you some more options. Both now for tax purposes, but also in the future. And then finally I would say you know a mistake we see is people not protecting themselves and their family in the event of a tragedy. That could be death. Your death or your spouse’s death. So term life insurance is something we might want to talk about there or other things. It could be property insurance in case something happens to your property you own or disability insurance. There’s a lot of different ways you can protect you and your family. So not having that protection is a mistake we see a lot of people make. You know, we would be happy to walk through this with you here at Centennial Wealth Advisory. To sit down for a no cost and no obligation meeting so that we can help you plan to retire well.