You absolutely need personal savings if your goal is to enjoy a comfortable retirement. Social Security might pay you a reasonably generous benefit, but chances are, it won’t be enough to cover your living costs in full.
Rather, you should expect to need income outside of Social Security once your career wraps up, and that’s where your IRA or 401(k) plan comes in. Meanwhile, we’re basically at the tail end of 2022, and that means now’s the time to focus on making the most of your retirement savings. That includes avoiding these big mistakes in December.
1. Stopping your contributions
If you front-loaded your IRA or 401(k) contributions and have officially maxed out for the year at this point, then you’re clearly free to stop funding your account in December. But if not, don’t pause those contributions to free up cash for the holidays.
December can be an expensive month — there’s no question about it. But it’s also your final opportunity to boost your long-term savings in 2022.
Furthermore, if you’re saving in a traditional IRA or 401(k) plan, as opposed to a Roth, every dollar you put into your account this year is a dollar of earnings the IRS won’t be able to tax you on. So even if you’re happy with the amount of money you’ve socked away for retirement this year so far, if you haven’t maxed out, keep funding your IRA or 401(k) in December.
2. Not checking up on your investments’ performance
Checking your IRA or 401(k) balance every day, or even every week, certainly isn’t necessary. In fact, reviewing your plan balance too often could drive you to make rash decisions — like dumping investments when they’re down and locking in losses.
At the same time, it’s important to look at how your retirement plan is doing every so often — ideally, once a quarter. So if you haven’t done an IRA or 401(k) checkup lately, carve out the time to do so in December.
You may decide it’s time to part with certain assets that have been underperforming outside of this year’s stock market decline. Or, you may decide that it’s a good idea to shift some assets around based on your age.
3. Not dumping costly investments
Savers with money in a 401(k) can easily fall into the trap of spending a lot of money on investment fees. That’s because 401(k)s generally don’t let you buy individual stocks. Rather, they limit you to a handful of funds, some of which can come loaded with hefty fees (known as expense ratios).
If you’re spending a lot on investment fees, it may be time to swap some costlier mutual funds in your 401(k) for index funds, which might charge a fraction of what their actively managed counterparts do. Plus, index funds commonly deliver comparable returns, so there’s no sense in paying higher fees if they’re not benefiting you financially in another way.
The end of the year is a great time to focus on your retirement savings. Aim to avoid these mistakes in December so you can close out the year on a more positive note.
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