There are many risks to your retirement savings. Here are five of the more common ones.
- Starting too late – When you are young it seems like retirement is far way. However, by starting to invest for your retirement while you are young it will be much easier to save enough for a comfortable retirement.
- Not saving enough – Just saving enough to get your 401k match is better than doing nothing but it probably won’t add up to enough for you to be able to retire. Even the conventional 10% figure probably isn’t enough. Another bonus to saving more is the ability to retire early.
- Lack of diversification – It is possible to be over diversified but most people’s savings suffer from a lack of diversification. Putting all your money into your company’s stock is a common example. That didn’t work to well for Enron employees. You should have your retirement savings in several investments.
- Taking too little risk – People are naturally adverse to losing money. The stock market slide in 2008 has made even more people risk adverse. Saving your money in a money market paying 1% isn’t going to allow you to retire. You need to take some risk.
- Taking too much risk – Examples of this would be betting all your money on one stock or one sector. This could have a huge return but it could also cripple your chances of retirement. You also need to move more of your money out of stocks and other riskier investments and into fixed income investments as you get closer to retirement.
That is just a brief overview of potential risks to your retirement savings. Now that you have an idea of what the risks are you can do further research and educate yourself to avoid or minimize these risks.