2. You Own Too Much of an Employer’s Stock
Too much of any single investment can be either a recipe for building wealth, or ticket to financial disaster.
On the one hand, employees of Apple who are long-term holders of their employer’s stock are probably pretty happy and may well be on their way to being set for retirement.
But not everyone who loads up on company stock is so fortunate. Enron employees who were big holders of their employer’s stock saw their retirement plans wiped out when the company collapsed and the stock became worthless.
A former colleague retired several years ago with quite a bit of stock from his former employer. He never diversified his portfolio and the stock tanked. The end result was that he had to go back to work in his late 60s and will have difficulty ever fully retiring.
Don’t make the same mistake. Diversify your investment portfolio to protect yourself from being at the mercy of the ups and downs of a single investment.
3. Your Retirement Savings Are ‘Average’
Atlanta-based financial advisor Russ Thornton, founder of Wealthcare for Women, cited figures from the Transamerica Center for Retirement Studies showing that:
- The average American in his 50s has $117,000 in savings.
- The average American in his 60s has $172,000 in savings.
Even if you combine those amounts with Social Security benefits — and even if you live very modestly — that is not much. “This level of ‘average’ savings won’t make for a very comfortable retirement,” Thornton said.
Thornton said that too many people think they will start planning for retirement “next year.” Eventually, that notion becomes a recurring annual theme. “They’re not willing to save for the future at the cost of delayed gratification,” he said.
To make matters worse, many people who are behind on retirement savings eventually try to make up for lost time by taking additional risks. That can do more harm than good, jeopardizing any savings they have accumulated, Thornton said.
The best way to avoid this fate is to start planning for retirement today. Even if you can only save a few dollars per pay period, don’t discount the power of compound interest over time.
“The way to get the most out of compound interest is to start saving as soon as possible,” Thornton said.