Don’t derail your employer-sponsored retirement plan


As a participant in your work-sponsored retirement savings plan, you’ve made a commitment to yourself and your family, to prepare for your future. However, it’s important to be aware of a few key risks that could derail your progress along the way.

1) Beginning with no end in mind
When planning for retirement, it’s best to know where you’re going. Your savings goal will depend on a number of factors — your desired lifestyle, preretirement income, health, Social Security benefits, any traditional pension benefits you or your spouse may be entitled to, and others. By examining your personal situation, you can determine how much you need to accumulate to provide enough retirement income. Your employer-sponsored plan likely offers tools to help you set a savings goal.

2) Investing too conservatively
Another key to determining how much you may need to save on a regular basis is targeting an appropriate rate of return. Investing too conservatively can be risky. If your contribution dollars do not earn enough, you may end up with a far different retirement lifestyle than you had planned

3) Investing too aggressively
Conversely, retirement investors striving for the highest possible returns might select investments that are too risky for their overall situation. Although it’s a generally accepted principle to invest at least some of your money in more aggressive investments to pursue your goals and help protect against inflation, the amount you invest should be based on number of factors.

Take into account your total savings goal, your time horizon, and your ability to withstand changes in your account’s value. Again, your employer-sponsored plan likely offers tools to help you choose wisely.

4) Giving in to emotion
Many retirement savings plans permit participants to borrow from their own accounts. If you need a sizable amount of cash quickly, this option may sound appealing at first; however, consider these points:

  • Any dollars you borrow will no longer be working for your future
  • The amount of interest you’ll be required to pay yourself could potentially be less than what you might earn should you leave the money untouched
  • If you leave your job for whatever reason, any unpaid balance may be treated as a taxable distribution

Carefully consider your options before borrowing from your retirement savings plan.

5) Cashing out too soon
If you leave your current job or retire, you will need to make a decision about your retirement savings plan money. You may have several options, including leaving the money where it is, rolling it over into another employer-sponsored plan or an individual retirement account, or taking a cash distribution. Although receiving a potential windfall may sound appealing, you may want to think carefully before taking the cash. In addition to the fact that your retirement money will no longer be working for you, you will have to pay taxes on any pretax contributions, vested employer contributions, and earnings on both. If you’re under 55, you will be subject to a 10% penalty tax.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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