Ah, the good old days! Remember when workers could depend on
their employers’ pension plan to provide sufficient retirement
income?
By Eric Heckman
Ah, the good old days! Remember when workers could depend on their employers’ pension plan to provide sufficient retirement income?
The “golden days” of retirement plans occurred not too long ago. But today, a large portion of the burden for retirement savings has been placed on the individual.
With corporate loyalty falling by the wayside and employees changing jobs with increasing frequency, workers are often left with a bundle of accounts from previous employers and various financial institutions.
In my years as a financial professional, I have seen the changes and with that, I have come up with the five common mistakes that may shrink your retirement assets.
Mistake No. 1: Taking rollover distributions directly. When changing jobs, workers are sometimes tempted to cash in some or all of their retirement plan assets. In fact, according to the National Endowment for Financial Education, approximately two-thirds of job changers do exactly that. You may avoid this common pitfall by transferring the assets into a traditional IRA or another eligible retirement plan.
Mistake No. 2: Not contributing enough. A number of companies match employee contributions of up to 6 percent of the employee’s annual salary. As a result, many employees only contribute that amount. However, participants in a 401(k), for example, may contribute up to $14,000 in 2005. According to IRS Publication 590, IRA contribution limits were increased to $4,000 for those under 50 and $4,500 for anyone over 50 in 2005. Contributing the maximum to help ensure your retirement future.
Mistake No. 3: Failing to capitalize on catch-up provisions. Those 50 or beyond, can take advantage of “catch-up” provisions that allow you to exceed the limits outlined in Mistake No. 2. If you’re nearing retirement, these provisions may provide a smart way to boost your asset base.
Mistake No. 4: Taking too much in IRA distributions. At age 70, the IRS requires you to begin taking distributions from your IRA. But, the IRS considers taking distributions too slowly just as big a mistake as taking them too early. The penalty for withdrawing too little can be severe.
Mistake No. 5: Disorganization. According to the U.S. Department of Labor, it is estimated that the average person will change jobs 10 times before retirement. If workers open a retirement account with each employer, they acquire a lot of paperwork to manage.
I recommend making a checklist for your retirement planning. If you’re not sure what to include, talk with a financial professional.
Eric Heckman is president of Heckman Financial & Ins. Contact him at www.WealthCreator.com or 297-9800.
