Don't Get Trapped in a Financial Pitfall

Financial Planning

Saving up for retirement is a daunting challenge. It takes years of continual contribution and monitoring.

The last thing you want is to interrupt your dream retirement with an unexpected expense or change in your finances.

Watch Out for Pitfalls

Diversify

Don't place all your eggs in one basket. I know you've heard it before today.

It's the best advice when planning out your retirement savings. That way, if one investment performs poorly, you'll have other options to fall back on. U.S. stocks, International stocks, and U.S. bonds all rise and fall at different rates.

Having a diversified portfolio with investments in all three areas will make you more prepared for a market collapse. In general, the stock market is a risky business but, as a result, it can also give you the highest returns.

Stocks, on average since 1928, have returned 9.5% a year while, over roughly that same period, bonds returned 4.9% a year. The standard deviation for stocks ( the amount of variability) is 19.2%. It means in any given year; a stock has a very good chance of being down 9.7% or up 28.7%.

It's why you need to diversify your portfolio with multiple options.

Other prominent baskets to put your savings in include a company supported 401K, IRA, and pension accounts.

Giving away too much to your kids

Grandparents love to support their grandkids through college and other ventures. This is a very nice thing to do, but you need to keep your own financial security first and foremost.

You don't want to have to rely back on your kids when you reach the latter part of your retirement.

Select the Right Tax Strategy

It's very important to use Tax Deferral Investments such as 401Ks and IRAs. Also, a Roth IRA is tax-free. Post-tax contributions (paying now) pay taxes on the amounts you contribute today, which includes your Roth IRA.

Pre-tax contributions (paying later) pay taxes when you take out the money years down the road, which includes your traditional IRA and 401K plans. Using these deferral tax strategies will lower your adjusted gross income.

This can help you avoid income limits for additional tax credits and deductions. The goal is to maximize potential tax benefits from your savings accounts and using a 401K, traditional IRA, and Roth IRA can help you do just that.

Follow these financial strategies to make sure your retirement nest egg is as big as possible.



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