Reach Retirement, Avoid Retirement Traps
Planning and investing for retirement is a journey. It takes a lifetime. At times during that journey, you may feel overwhelmed, frustrated and discouraged. Make your trip a bit more palatable by avoiding these 4 retirement traps:
Trap #1 – Oblivious Investing
Even though the American stock market has historically proven to be resilient, the market still goes up and down.
Investing oblivious to these market cycles is the first trap that you want to avoid. Good investing requires you to take note of the cycles but not become crazed about them. Market cycles are a normal part of investing. The stock market will have unpredictable swings but that does not mean that you have to lose your perspective during those swings. Be aware, do not go insane.
Trap #2 – Going For A Quicky
Misunderstanding the retirement investing time cycle is the easiest retirement trap to fall into. Saving for retirement is a long-term goal. Investing for the short-term is not retirement investing, it’s just trying to catch the market swings. For many investors the temptation to ride the wave of a market swing is a hard temptation to overcome.
You will avoid stunting the natural growth of your retirement investments by stopping yourself from going for the short cuts. When you constantly try to catch the next market upswing you risk your retirement investment money. Use your time and money wisely; you only get so much of each…your retirement day will be here before you know it.
Trap #3 – Emotional Involvement
When money is involved it’s easy for your emotions to become fickle. Stay focused on your financial goal regardless of what the market is doing.
Pick an amount of money that you can comfortably invest every month. If you invest the same amount religiously you will be dollar cost averaging. What that does is buy some investments on the high side and some on the low side. In the long run it averages out the amount you pay for your purchases.
With dollar cost averaging there is no emotion involved. You pick your amount, keep investing and could care less about which way the market is swinging. It’s a winning investment strategy.
Trap #4 – Cashing Out Early
Taking money out of your retirement plan before age 59 ½ is a big no-no. Unless you are dead or disabled you will encounter the wrath of the government. You will owe income taxes and perhaps incur a 10% penalty on any amount of money you withdraw from a retirement account before age 59 ½. Why would you want to do that?