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Senior Finances

Five Retirement Investment Mistakes to Avoid in Your 50s

Many say that 50 is the new 40, which means those who want to retire in their 50s or shortly after should have plenty of time and energy to travel, volunteer, and work on deferred maintenance and projects around the house. But retiring from your 9-to-5 job only to realize that you don’t have the financial reserves to leave the workforce for good can be a major blow to your plans and expose some unforeseen retirement investment mistakes.

So what should you do?

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Read on for five huge mistakes that can sideline your plans when you’re heading down the home stretch toward retirement and be sure to avoid them!

retirement loans

#1: Borrowing From Yourself

There are a limited number of situations in which taking out a 401(k) loan may be your best option. But the power of compound earnings means that borrowing from your retirement funds in your 40s and 50s leaves you far less time to recover from a loss in gains. And if you’re laid off while you have an active 401(k) loan, you could be required to repay these funds immediately or face some hefty penalties, interest, and taxes.

Suspending your retirement contributions or borrowing from your retirement accounts may help you weather a bump in the road, but often at the expense of your long-term financial security. Consider your retirement accounts an option of last resort when it comes to drumming up money for an unexpected expense.

#2: Underestimating Your Expenses

Many online retirement calculators will calculate the amount of money you’ll need in retirement as a proportion of your pre-retirement annual income. While this can provide you with a ballpark retirement figure based on your current earnings, it’s not always an accurate picture of your actual retirement expenses.

If you’re planning to travel, pay for a child’s college education or first down payment, pay out-of-pocket for health insurance premiums, or remodel your home, your initial retirement expenses may match or even exceed your pre-retirement income. Sit down and make a five- and ten-year spending plan before you decide your current retirement balance is enough to fund your future plans.

retirement savings

#3: Being Too Conservative

In addition to calculating your retirement expenses as a percentage of your pre-retirement income, online calculators can assign an age-related investment mix that includes a large proportion of bonds or cash equivalents. These investments are designed to provide some income stability to offset the volatility of stock funds, but this stability can come at a steep cost.

When interest rates rise, bond yields tend to fall, so the corollary to the recent run of record-low interest rates means that bond funds are likely to see a major dip in the coming years. It may be worthwhile to review your asset allocation to make sure you’re best poised to take advantage of any future market gains, rather than plodding along at money-market interest rates.

#4: Not Having a Plan

Many retirement gurus emphasize the importance of retiring to something rather than from something. And even if you have a retirement spending plan, leaving the workforce without some idea of how you’ll spend your time can leave you spinning your wheels. Give some thought to how you’d like to spend your time before you put in your final two-week notice.

Retirement Investment Mistakes to Avoid

#5: Retiring Too Soon

Leaving the workforce too early can mean having to job-hunt at a time in your life you may not physically be able to handle working. Unfortunately, this is a common occurrence: A recent Fidelity study found that 55 percent of recent retirees were at risk of running out of money in their lifetimes.

By retiring during your highest-earning years, you could be leaving money on the table. Sticking it out for just a bit longer could not only bring you closer to receiving Social Security and Medicare but add tens or hundreds of thousands of dollars to your retirement coffers, providing you with a much greater measure of financial security.

Do you have any retirement investment mistakes or tips stories? Share them in the comments section!

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    Phil Town is the founder of Rule One Investing, a hedge fund manager, a two-time New York Times best-selling author, an ex-Grand Canyon river guide, and a former lieutenant in the U.S. Army Special Forces. He and his wife, Melissa, share a passion for horses, polo and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.

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