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.
Comments
3 responses to “5 Risks to Your Retirement”
the one thing for me that is crucial is real estate. Will always go up, so for me getting everything paid off is the most important along with my investments. I have been starting to invest in solar throughout my dwelling and so a retirement plan for me is getting off the grid and lowering my overhead. I have found some really interesting communities that have the same goals that I found through the site 55places.com. I just think that instead of trying, at least for me, to have a huge cache of retirement savings to continue to pay a high overhead, I figure less stress by just lower overhead and going green at the same time.
With regard to Victor’s comment above that “(real estate) will always go up”, that’s hard to fathom after the free-fall of real estate prices over the past two years. And further, it is not axiomatic that those losses will be quickly reversed just because they have now leveled off. As for lowering overhead by getting off the electric grid, that doesn’t make sense based on where I live, because in the Los Angeles area my electric bill is a bit less than $20 per month, average. (I do have gas for stove, water heater, and heating.) Just how much does Victor hope to save on electricity? Certainly the cost of solar cannot be ALL recouped through tax rebates? Or?
Just to add one more to the list — in these recessionary times, the biggest risk of all to one’s retirement is not having a job. The unemployment situation is creating unprecedented challenges, where some percent of the 15 million unemployed are people who were routinely adding to their retirement accounts. Now, not only are they unable to save, many are forced to live off their retirement savings years before retirement.