Stifel  Investment Services Since 1890                   Rollover Center
Investment Strategist
Investment Strategist
Are You Prepared For Retirement.
Planning and saving for retirement is one of the most
important financial concerns an individual will be confronted
with. Unfortunately, all too often, the basic fundamentals of
retirement planning are overlooked.
Consider ten common retirement planning mistakes that may
prevent you from having the retirement you’ve envisioned:
1. Not taking advantage of employer-sponsored
retirement plans.
Participating in an employer-sponsored retirement plan,
such as a 401(k), is a convenient way to build your nest egg. 401(k) contributions are automatically deducted from
your paycheck before taxes are withheld, thus reducing your overall taxable income. In 2014, you can contribute
up to $17,500 to your 401(k), and if you’re age 50 or older, you can make an additional “catch-up" contribution
of $5,500. And to make retirement saving even more attractive, many employers offer matching contributions,
often a percentage or dollar match of the employee’s contribution. If your employer offers a match, and you’re not
contributing at least enough to earn it, you’re turning down free money.
2. Cashing out your 401(k) when changing jobs.
When changing jobs, you’ll likely be faced with a few options regarding your 401(k), such as leaving it where it is,
rolling it over to your new employer’s plan, or rolling it over to an IRA. Regardless of which route you take, possibly
the worst thing you can do is to receive your funds in cash. While cashing out gives you immediate access to your
money, you will not only forgo any potential tax-deferred growth your assets could have generated, you could also
be faced with a hefty tax bill. If you cash out prior to reaching age 59 ½, your distribution will be subject to both
ordinary income taxes and a 10% early withdrawal penalty (some exceptions to the 10% penalty may apply, most
notably if you are age 55 or older at the time of termination of employment). In addition, your former employer is
required to withhold 20% of the distribution for federal taxes, further reducing the amount you stand to receive.
The 20% withholding (but not the 10% penalty) will be counted against your income tax due or toward any refund
when you file your tax return.
Decisions to roll over or transfer retirement plan or IRA assets should be made with careful consideration of the
advantages and disadvantages, including investment options and services, fees and expenses, withdrawal
options, required minimum distributions, tax treatment, and your unique financial needs and retirement planning.
You should consult with your tax advisor regarding your particular situation as it pertains to tax matters.
3. Assuming Social Security will take care of your needs during retirement.
While Social Security was never intended to serve as the sole source of income for retirees, for many people, it
does just that. The Social Security Administration estimates that Social Security replaces about 40% of the average
wage earner’s income at retirement. Can you afford to live on 40% of what you’re currently earning. Probably not.
Most professionals suggest viewing Social Security as a supplement to your personal retirement funds rather than
the other way around. As a general rule of thumb, you should plan to replace 70% to 80% of your preretirement
income in order to maintain a comparable standard of living once you’ve stopped working. Therefore, saving for
retirement is critical.
September 2014
4. Not understanding risk tolerance.
Before embarking on an investment strategy,
it is imperative that you determine your personal
tolerance for risk. Generally speaking, the greater
the degree of risk in your portfolio, the greater the
volatility, but also the greater the potential return.
When determining your tolerance for risk, you must
consider your age, investment time horizon, present
and future financial condition, and your long-term
investment goals. As you grow closer to retirement,
you’ll likely consider reducing the amount of risk
in your retirement portfolio. However, you’ll also
want to avoid becoming too conservative in your investments. After all, you’ll need your retirement savings to
last for decades, so you don’t want to outlive your savings. Therefore, it is necessary to periodically review your
investments to ensure they still match your tolerance for risk.
5. Not being diversified.
A potentially dangerous mistake some investors make is not being fully diversified within their retirement
plan. For example, if a large portion of your 401(k) is invested in your employer’s stock, you could be setting
yourself up for disappointment should the company fall on difficult financial times. While diversification (or
asset allocation) does not ensure a profit and may not protect against loss in declining markets, it can play
a key role in establishing a successful investment strategy and reducing risk. A good starting point is to
diversify your investments into three classes: stocks, bonds, and cash. You can then further diversify by
spreading your investments across a variety of sectors (such as technology, pharmaceuticals, financial, etc.)
You can also diversify funds according to market capitalization (large-cap, mid-cap, and small-cap), style
(value versus growth), and world markets (international, emerging markets, etc.).
6. Waiting for the “right time" to start saving.
After paying for the mortgage, car payment, and utility bills, it is understandable that putting money aside
for retirement may be difficult for some. However, it is a task that you should find a way to do, as putting
off saving for retirement may have a negative impact on your overall plan. For example, if you were to make
annual investments of $2,000, earning an 8% rate of return compounded annually, contributions from
the age of 30 to 65 would grow to $372,204. Based upon the same investment and rate of return, postponing
your savings by one year – making contributions from the age of 31 to 65 – would leave you with only
$342,634. If you waited five or ten years more, the results would be even more drastic. (This hypothetical
illustration does not reflect actual performance of any particular investment.)
7. Retiring too soon.
Most people would like to retire as soon as possible. But with life expectancies stretching further, it is
important to remember that the funds you have when you retire will need to last for the remainder of your
life — longer if you plan on leaving some of your assets to your heirs. You’ll need to factor in the cost of
inflation when calculating the retirement funds you will need. For example, you may find that an income
of $5,000 a month is enough now, but may not be adequate 20 years from now. Also, if you plan on retiring
before reaching your “full retirement age" as determined by the Social Security Administration, you need to
consider that you’ll only be receive a portion of your earned Social Security benefits.
8. Failing to monitor the performance
of your investments.
Markets are constantly changing. While you
should be investing for the long term, it is important
to consider the impact of market volatility on your
investments. A periodic review of your portfolio
will allow you and your investment professional to
determine whether changes are necessary to your
allocation mix. You’ll also want to carefully review
the impact that any fees or taxes may be having
on your investments.
9. Assuming your spouse’s retirement
plan will take care of both of you.
Your spouse may be contributing the full amount
possible to his or her retirement account, but will
that be enough to provide for both of you. This is
especially an important concern for women. According
to the Women’s Institute for a Secure Retirement, one-
half of all American women work in low-paying jobs that
don’t offer retirement benefits. Women retirees typically
receive only one-half the average pension benefits that
men do. This means a large percentage of women will
come up short when it comes time to retire. Since the
average woman lives longer than the average man,
failing to have enough funds to get through retirement
may have even more severe consequences for a woman.
10. Failing to seek the advice of a professional.
Managing your assets and determining which
investments will be the best vehicles to help you
pursue your retirement goals takes time, patience, and
knowledge. Seeking the advice of your Stifel Financial
Advisor can help alleviate the burden of researching the
vast amount of investment information available on your
own. In addition, your Financial Advisor can work closely
with your tax professional and estate planning attorney
in order to solidify your overall financial plan.
There are a number of innovative investment vehicles
available that are designed to make saving for retirement
not only systematic and convenient, but often offer many
tax advantages as well. For more information on which
method of saving for retirement best meets your needs,
contact your Financial Advisor today.
ThINgS To CoNSIder
Have you addressed these
concerns. You may want to
consider these points to see
if you are ready to retire …
• Have you decided where you
are going to live.
• Have you thought about what
kind of health insurance you
will have during retirement.
• Have you reviewed your life
insurance lately.
• Do you have a will, and when
is the last time it was updated.
• What professionals, such as
estate planners, tax preparer,
or attorney have you consulted.
• Are you familiar with the
challenges you will face
during retirement.
• Has your nest egg been
reviewed as to its ability to
provide the retirement you
• Will you work part-time during
retirement, or will you pursue
any hobbies.
• Have you figured your income
and expenses for retirement.
One Financial Plaza | 501 North Broadway | St. Louis, Missouri 63102
Stifel , Nicolaus & Company, Incorporated | Member SIPC & NYSE |
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