4 Retirement Mistakes You May Be Making

When saving and investing for retirement, there are a few things you can do to get ahead, as well as some mistakes you can make that could hinder your progress. Here are four retirement blunders you may not have realized you were doing.

1. Not contributing to a Roth IRA while you are eligible.

One of the most acceptable ways to save and invest for retirement is through a Roth IRA. Allowing your money to grow tax-free while taking tax-free withdrawals in retirement can help you build wealth and put you in a position to be financially independent in retirement. For many people, the difference between paying capital gains taxes on six-figure withdrawals in a Roth IRA vs. a traditional brokerage account can be tens of thousands of dollars.

Because of the income cap, not everyone is eligible to contribute to a Roth IRA. If you’re single and make less than $129,000, you can contribute up to $6,000, with a phaseout range of up to $144,000. If your income is less than $204,000 as a married couple filing jointly, you can contribute up to the cap, with the phaseout range going up to $214,000.

Take advantage of the significant tax advantages that a Roth IRA provides while you still have the opportunity.

2. Contributing to an IRA after maxing out your 401(k).

The maximum amount you can contribute to a 401(k) plan for the tax year 2022 is $20,500 ($27,000 if you’re 50 or older). Many people find it difficult to contribute the maximum amount. Even if you have the financial means to make the highest contribution, you may find it overvalued.

The minimum amount you should put to your 401(k) is whatever your company will match, not a penny less. After setting your contributions to your company match, your next step should be optimizing your IRA contributions.

There are several reasons why you should do this. First, because Roth IRAs have an income limit, you may not always be qualified to contribute to one (regular IRAs don’t have an income limit, but they do limit deductions).

Because you can buy any stock or fund with an IRA, it functions similarly to a brokerage account. An IRA gives you more control over your money and where it goes. You can choose any investment you like, rather than only those offered by your employer, such as a 401(k).

Consider returning to your 401(k) and increasing your contributions if possible once you’ve maxed out your IRA contributions.

3. Investing in target-date funds through your 401(k)

When choosing your investment elections in your 401(k) plan, you’ll see funds put together with a year in the name, such as ABC Fund 2060. These are target-date funds, and the year indicates when you expect to retire.

As you approach retirement, target-date funds are designed to rebalance and become more conservative. Target date funds, on the other hand, have the disadvantage of being actively managed, making them more expensive than passively managed funds.

You can invest in the funds generally held within the target date fund instead of paying the additional target-date fund fees. For example, if you’re in your mid-thirties, your 401(k) might look like this:

• 60% in a large-cap index fund

• 20% in an international index fund

• 10% in a mid-cap index fund

• 10% in a small-cap index fund

The percentages will vary depending on your preferences but bear in mind that small-cap and mid-cap funds are riskier, so avoid them as you approach retirement.

4. Underestimating the amount of Social Security benefits you’ll receive

The amount of money you get each month from Social Security is mainly determined by when you decide to retire. The Social Security Administration considers your full retirement age (FRA) to be 67 if you were born in 1960 or later. You can, however, start receiving benefits as early as age 62 or wait until you’re 70.

Your benefits are lowered by five-ninths of 1% for each month you claim before your FRA, up to 36 months, if you take them early. If you get benefits for more than 36 months before your FRA, the amount you receive will be reduced by five-twelfths of 1% for each month over 36.

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Bio:
After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely with
helping them pursue the most comfortable financial life possible.

Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.

Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.

Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.

Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.

With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.

Aaron can help you and your family to create, preserve and protect your legacy.

That’s making a difference.

Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.