- Implementing a few straightforward strategies makes it easy to sidestep common financial mistakes.
- Protect and grow your savings by knowing what to watch out for.
- Your advisor is here to help you stay on track.
Sometimes, taking charge of your retirement planning means knowing what not to do. Here are five common financial mistakes people make as they near retirement — plus proactive strategies for staying on track to reach your goals.
1. Putting all your (nest) eggs in one basket
A well-diversified portfolio allows the positive performance of some investments to balance out the poor performance of others. This mix of investments in different asset classes (e.g., stocks, bonds, real estate) can help keep your retirement goals on track even when one investment experiences a rocky period. Diversification is especially important as you near retirement because you have fewer years of income to rebuild savings if some investments post losses.
Your financial advisor can recommend diversification strategies based on your goals, time horizon and risk tolerance. To help you remain on course, your advisor will connect with you regularly to review your progress and your portfolio.
2. Leaving your estate plan for your heirs to figure out
You can make things much easier for your loved ones in the future by talking through estate planning today. Your advisor can work with you and your estate planning attorney to make sure that your financial wishes will be carried out when you die.
Estate planning includes:
- Creating your will and/or trusts
- Documenting your health care directive and power of attorney designation
- Ensuring that your beneficiary designations are up to date for all your financial accounts, including retirement accounts, annuities and insurance
- Keeping a list of all your online accounts and passwords in a secure place that your attorney or beneficiaries can access quickly if needed
Your advisor will provide you with personalized advice that aligns with a comprehensive estate plan, and will help bring your family members together for the sometimes-difficult discussions.
3. Waiting too long to think about health care needs
Protecting your assets means planning carefully for health care needs, including the expected and the unexpected. The first step is to make sure you have enough medical coverage, plus a long-term care strategy.
The process begins by finding out which Medicare benefits you’ll be eligible for down the road and researching options for supplemental insurance. For example, hybrid life insurance policies combine life insurance with long-term care benefits that may help you pay for the costs of a nursing home, assisted living or in-home care — expenses Medicare does not cover. In general, these hybrid policies may be more affordable than traditional long-term care policies.
4. Maintaining 401(k) accounts in multiple places
If you’ve changed jobs several times during your career, you might have multiple 401(k)s at different employers. It may make sense to consolidate some of these accounts — but before you do, discuss a few critical factors with your advisor:
- The investment options for each account
- Your risk tolerance and time horizon
- The right balance between taxable and tax-deferred accounts
- How you’ll take distributions when you need them
- Whether to leave savings in your former employer’s qualified retirement plan if you have employer stock that has grown significantly in value
You might be able to roll your 401(k) savings into an IRA, an option that may provide you with greater control of your retirement assets and more growth potential while maintaining tax benefits. Consolidating your retirement savings can also help you and your advisor plan more strategically for retirement.
5. Paying too much in taxes
Does it make sense to pay taxes now to lessen your future tax liability? Could charitable gifts lower your taxable income? Are there tax deductions you’re not using to your advantage? Your financial advisor and tax professional can work together to help you create a tax strategy for your evolving investment choices.
Watch our short video to learn more about how tax diversification can benefit you.
Schedule a retirement check-in
Wondering whether there are other steps you could be taking — or not taking — to help ensure a confident retirement? Working together with you throughout the year, your Ameriprise financial advisor can help you navigate your options and stay on course to achieve your financial goals.