Not having enough retirement income is a major concern among a lot of people. And while there are steps you can take to mitigate that concern, the reality is that misguided planning and unfortunate choices could leave you cash-strapped once your career wraps up. With that in mind, here are three major mistakes that could leave you with less retirement income than you need to live comfortably.
1. Not investing in stocks at all during retirement
You’ll often hear that you shouldn’t go heavy on stocks during retirement, because they can be very volatile. And that’s reasonable advice.
But there’s a big difference between shifting away from stocks as a retiree and dumping them completely. And if you maintain an investment portfolio during your senior years that’s totally devoid of stocks, you may not see the returns you’re hoping for. The result? An inadequate amount of retirement income.
Rather than run that risk, stay invested in stocks to some degree. That could mean letting stocks comprise 30%, 40%, or even 50% of your assets, depending on different factors, including your risk tolerance and outside income sources.
2. Holding on to a struggling income property
Owning an income property could work out well for you in retirement — provided your rental keeps generating a steady stream of income and isn’t costing you too much. But if your income property becomes a money pit and stops being profitable, failing to cut ties could leave you not only with a serious retirement income shortfall, but also a host of bills.
If you end up spending more on maintenance, property taxes, and repairs than you’re collecting in rent from your income property, you won’t be doing yourself any favors. So once things start to sour, your best bet may be to sell that property, take the money, and invest it elsewhere.
You may decide to purchase a different income property in an area where there’s more demand for rental units. Or, you may decide to throw the money into broad market index funds. The choice is yours, but if your income property becomes a sinking ship, don’t wait to disembark.
3. Not keeping any money in a Roth retirement plan
Many people opt to save in a traditional 401(k) or IRA so they can enjoy an up-front tax break on their retirement plan contributions. But withdrawals from traditional retirement plans are subject to taxes, and those could be a huge burden later in life.
That’s why a good bet is to put at least a portion of your nest egg into a Roth savings plan. Many 401(k)s these days come with a Roth savings option, and if your income isn’t too high, you can fund a Roth IRA directly. And if you happen to earn too much money for Roth IRA contributions, there’s always the option to fund a traditional IRA and convert it to a Roth afterward.
The last thing you want is a retirement income shortfall when you’re trying to enjoy your senior years to the fullest. Avoid these mistakes, and that hopefully won’t be a problem for you.
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