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Don’t make common retirement mistakes

Posted: November 3, 2008 7:20 p.m.
Updated: January 5, 2009 5:00 a.m.

Everyone makes mistakes. If we are smart, we can learn from our mistakes. With luck, we can learn from other people's mistakes too. In the current financial problems affecting our retirement assets, and our hesitancy to be in the market, following are some common pitfalls to avoid with your retirement savings plan at work.

n Not maximizing your match - If your employer offers a matching contribution, take advantage of it. Not contributing enough to maximize the match from your employer is like leaving a pay increase on the table. Don't pass up free money!

And, remember, you are investing monthly, and when the market is down, you are purchasing more shares if you are in funds invested in the market. This is dollar cost averaging and has proven over time to have a better return.

n Not diversifying - Different types of investments tend to react differently to the same market conditions. By diversifying, spreading your money across the major asset classes, like stocks and bonds, you reduce the risk that a big drop in either area could affect your entire portfolio.

n Not rebalancing - Investing for the long term doesn't mean you shouldn't adjust your account. In fact, it is essential that you rebalance your retirement account on a regular basis, particularly after volatile market periods.

n Taking a loan - There are few places as easy as your retirement savings plan such as a 401(k) plan for taking a loan (if your plan provides such a feature). But this can be very costly. Especially taking money out when values are down, such as our current market problems. It robs your retirement nest egg, and can put your future financial security at risk. Also, if you leave your job before repaying the loan, it will count as a distribution from your plan, and you will be taxed on the outstanding balance of the loan, and may face an early withdrawal penalty.

n Cashing out - Some people make the mistake of taking all their money from their retirement savings plan whenever they leave a job. Instead of cashing out, transfer your balance into a consolidated rollover IRA every time you leave a job, so you can keep your retirement assets working for you.

Taking informed action is better than doing nothing. Whether you have an employer plan as noted above or a private IRA, SEP-IRA, or Simple IRA, it is difficult during these turbulent times to continue investing in the market.

Your particular circumstances or issues can determine your course of action when unstable conditions are affecting your retirement planning.

This is why you should not act alone, emotionally, or on impulse. Contact your financial advisor, and make the best choice possible under the circumstances.

A latest statistic shows currently only 19 percent of Americans consult with a financial advisor.

Jim Letini, CLU, ChFC, IAR is president of Lentini Insurance & Investment, Inc., located in Santa Clarita. His column represents his own views and not necessarily those of The Signal.


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