You have worked hard to save for retirement. Your family may have forgone other experiences etc in your life to save for retirement. You expect that there will be enough money at the end of your working years to live comfortably. But what if you found out that there are leaks in your retirement savings in small amounts over the years. That this amount was going to make you have to work a few years longer. Or perhaps forget about trips that you may have planned for your retirement. This is the subject of this post. How to identify leaks in your retirement savings? Also how to prevent them from making a significant difference in your retirement life style.
Leaks in your Retirement Savings – What are they?
They are divided into two types, some under your control and others that are smaller and sneaky but still have an impact on your total value of your savings when you retire.
- Hardship withdrawals
- Withdrawals prior to full retirement
- Loans from your retirement plan
- Cash outs from plans
- Excessive trading fees
- Mutual Fund fees
- Administration fees
- Selling low and buying high
Hardship withdrawals – funds are withdrawn and not repaid to deal with extreme hardship issues such as medical situations
Withdrawals prior to full retirement – funds withdrawn after age 59 to deal with pre-retirement issues and not repaid. Once these funds are withdrawn they are not earning income and you also lose the compounding effect
Loans from your retirement plan – taking a loan from your plan and not repaying it. Not only do you have to pay taxes on the withdrawal, you lose forever any future income that this money might have generated.
Cash outs from plans – employees change employers all of the time and you do not want to lose site of the money that has been set aside for your retirement Transfer the funds into the new employers retirement fund or into a locked-in plan
Excessive trading fees – trading fees are expensive and if you are doing a lot of trading you could be eating into any profits that you may have made.
Mutual Fund fees – they charge a fee usually hidden regardless of whether the fund does well or not. Can you afford to pay 1% to 2% every year to your mutual fund management team?
Administration fees – some advisers charge a fee every year to administer your account. Is it reasonable? Can you get the same service or better service somewhere else?
Selling low and buying high – timing the market is extremely difficult. Most people end up buying as the market is increasing and then selling as it is declining because they are afraid they are going to lose everything. Invest in blue-chip dividend-paying equities and focus on the long term.