Avoid these Five Retirement Mistakes
March 5, 2025
Making retirement planning errors at any time, but especially when there’s economic uncertainty
and market volatility, can create difficulties in achieving your long-term goals. Here are five
common, and potentially costly, mistakes you’ll want to avoid.
- Getting out of the market after a downturn
When the market takes a big hit, you may be tempted to sell investments in your retirement
portfolio and hold the proceeds in cash. If you do, you may miss the gains if the market suddenly
turns around.
Consider taking a long-term approach by keeping a strategic mix of asset classes in your
portfolio: stocks, bonds, and cash alternatives. The combination that’s right for you will depend
on a variety of factors, including how comfortable you are with market volatility (risk tolerance),
what you’re investing for (objectives), and how long before you’ll need to tap into your accounts
(time horizon).
And think about periodically rebalancing by checking your accounts to see if market activity has
shifted your investments away from your desired asset allocation. If it has, you may want to buy
and sell investments to bring your accounts back into alignment.
- Not taking full advantage of retirement accounts
Consider contributing up to the maximum allowable amount into your qualified employer-
sponsored retirement plan (QRP), such as a 401(k), 403(b), or governmental 457(b) plan. This
can help fund your retirement as well as reduce your taxable income.
If you are unable to contribute the maximum amount and your employer offers a matching
contribution, try to contribute at least as much as the match — otherwise, you are leaving free
money on the table.
- Buying too much of your company’s stock
If your employer’s stock is an investment choice in your 401(k), you might want to consider
limiting the amount you own. With your salary already tied to your company’s fortunes, you
may not want a sizable part of your retirement savings to be similarly dependent.
- Borrowing from your retirement plan
Many QRPs offer loans to participants. Unless you need the money for an emergency, try not to
use this option. Borrowing can be an expensive choice in two ways:
- Smaller retirement savings: When you take out a loan, you are losing the benefits of
potential investment growth, and that could leave you with a smaller retirement savings.
Also, if you stop contributing while you are paying back your loan, you won’t receive
any employer matching contributions. - Repayment requirements: If you leave your employer, the plan may give a short period
of time (e.g., 30 or 60 days) to repay that outstanding balance. However, if not repaid, the
outstanding loan balance is generally subject to income tax and possibly an IRS penalty
for younger workers.
In addition, cashing out of your 401(k) when you move to a new employer might be costly.
Know your distribution options when changing jobs.
- Underestimating the cost and length of retirement
Some crucial factors to take into account:
- Longevity: If you retire around age 65, you could spend 25 years in retirement. As a result, you may need to save enough to last that long, or longer.
- Health care: Even with Medicare, you could have expenses for supplemental insurance, some prescription drugs, and nursing home care.
- Lifestyle sticker shock: Retirees may need approximately 80% of their preretirement income each year.
A financial advisor can help educate you regarding your options so you can decide which ones
make the most sense for your specific situation.
This advertisement was written by Wells Fargo and provided to you by John Nelson.
This article has been prepared for informational 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 principle. Asset
allocation cannot eliminate the risk of fluctuating prices and uncertain returns. The accuracy and completeness of this information
is not guaranteed and is subject to change. Since each investor’s situation is unique you need to review your specific investment
objectives, risk tolerance, and liquidity needs with your financial professional(s) before an appropriate investment strategy can be
selected. Also, since our firm does not provide tax or legal advice, investors need to consult with their own tax and legal advisors
before taking any action that may have tax or legal consequences.