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Retirement may seem a long way off and far removed from your day-to-day concerns. And yet, this is actually the best time to start planning and saving — that is, when you still have time to accumulate the money you’ll need.
Here are some common mistakes that throw people off course in their retirement planning. Knowing these pitfalls should help you steer clear and save more.
If your company’s 401(k) or other qualified employer sponsored retirement plan (QRP), including 403(b) and governmental 457(b), offers a company match (meaning that your employer pledges to match your contribution up to a certain percent of your salary), you have an extra incentive. If you neglect to invest enough to receive the full company match, you’re leaving money on the table. If you get a raise, consider increasing your QRP contribution.
When the market takes a big hit, you may be tempted to pull out all the stocks in your retirement portfolio. If you do, you’ll miss the gains if the market turns around. You want to keep a good mix of asset classes in your portfolio: stocks, bonds, and cash. And once a year, you should rebalance to keep your asset allocation on track.
If your employer's stock shares are an investment choice in your 401(k), you may want to consider keeping your allocation to no more than 10 percent. You’re not being disloyal; even the mightiest of companies — think Enron and WorldCom — can falter. With your salary already tied to your company’s fortunes, you don’t want a sizable part of your retirement savings to be similarly dependent.
Many QRPs allow you to borrow from your account. Unless you need the money for an emergency, try not to. Borrowing can be an expensive choice, in two ways:
In addition, cashing out of your 401(k) when you move to a new employer might be costly as well. Know your distribution options when changing jobs.
Some crucial factors to take into account:
Find out with My Retirement Plan, an online tool that makes it easy to see if you are on track. After you answer a few questions, My Retirement Plan will calculate your retirement savings goal and recommend personalized next steps.
This information is provided for educational and illustrative purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Investing involves risk, including the possible loss of principal. The accuracy and completeness of this information are not guaranteed and are subject to change. Since each investor's situation is unique, you should review your specific investment objectives, risk tolerance, and liquidity needs with your financial professional to help determine an appropriate investment strategy.
Investment products and services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC (WFCS) and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.
Retirement Professionals are registered representatives of and offer brokerage products through Wells Fargo Clearing Services, LLC (WFCS). Discussions with Retirement Professionals may lead to a referral to affiliates including Wells Fargo Bank, N.A. WFCS and its associates may receive a financial or other benefit for this referral. Wells Fargo Bank, N.A. is a banking affiliate of Wells Fargo & Company.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.
Wells Fargo and Company and its affiliates do not provide tax or legal advice. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.
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