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Retirement Planning Mistakes

BECU Investment Services

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Whether you have started retirement planning or don't know where to begin, learn what not to do when making investment, 401(k) and wealth management choices.

1. Not starting at all

No matter your age, starting a savings plan for retirement is better than not starting one at all.

For example, a 21-year-old and a 35-year-old start saving for retirement with a fixed 5% rate of return and an estimated retirement age of 66.

  • The 21-year-old invests $1,000 a year for 15 years. Then, at the age of 35, stops contributing and just lets the assets grow. Total amount invested: $15,000.  
  • Next, a 36-year-old begins contributing $1,000 a year for 30 years until retirement.  Total amount invested = $30,000.

Who do you think would have more when they retire? The answer would seem obvious: the 35-year-old, who invested twice as much. However, in this scenario, the 20-year-old's nest egg, which was invested for 45 years, would grow to $93,263. The 35-year-old's, which was invested for 30 years? Just $66,439.1  Almost nothing compares to the power of having time on your side and starting as early as possible to maximize your earning potential.

1This is a hypothetical example and is not representative of any specific situation. Your results may vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

2. Deciding it's too late

Similar to not getting started, potential investors shouldn't be discouraged by the example above – this story is meant to encourage young investors not to delay thinking of retirement.

Ultimately, it's never too late. And, once you hit your 50s, individuals are given an opportunity to “catch up” on their 401(k) contributions. Older age is also the time individuals tend to have the most disposable income. They are typically empty nesters in their highest earnings years, so it's an ideal time to funnel that disposable income into retirement. However, it's surprising how many people over 50 feel like it's simply too late to start saving for retirement and choose to take their chances with Social Security alone. 

3. Relying only on Social Security

Social Security was never really designed to be the end-all for retirement funding. In fact, when Social Security came out, the average life expectancy after retirement was just a handful of years. Now people are living far past original life expectancies or are even retiring at earlier ages. In order to be able to survive – and thrive – in your retirement years, most experts say you should plan for Social Security to only be 40% of your funding; the rest should come from personal savings, 401(k)s, pension plans, or other retirement options.2

4. Depending on relatives

Relying on your parents for retirement savings is not an option. Whether it's a supposed inheritance or a well-off relative, people are living a lot longer.

If your parent's money runs out at age 85, and that person lives until 91, there is nothing left over for you. Many people seeking financial planning advice do want to leave a legacy, building a nest egg that allows not dipping into the principle. Doing so allows individuals to pass on a legacy to their children or even a charity. But it shouldn't be relied on as a retirement plan for those without funds.

5. Ignoring your company's 401(k) match

When it comes to company matches, inquire about your company's match policy to ensure you're not leaving money on the table. Many companies offer a 401(k) -match program up to a certain amount.

For example, Company ABC offers a 50% match up to 6% of an employee's contribution. Employees at Company ABC who contribute at least 6% of their paycheck to their 401(k) will get a 50% match on their contributions without having to do a single thing. Simply put, it's free money.  

6. Not budgeting

Investing doesn't have to be rocket science. Think of it this way: A fish adapts to the size of the aquarium. In other words, we all learn to swim with the money we give ourselves (within reason, of course).

Start investing a manageable amount like $50 per month. It's likely that you won't notice too much of a difference in your budget. Then, increase the investment amount little by little. By the end of the month, your statement will show your savings efforts.

Maybe you're just starting to contribute to your 401(k) and can't fully meet your company match. But start somewhere. Eventually, try to increase your contribution with the next raise or job change. If you get a roommate and rent falls, try to increase your contribution again – see how it feels.

7. Not exploring investment options

There are generally four different ways that most people can start investing right away. First, set up an emergency fund before investing. By building up at least 3-6 months' worth of living expenses, your budget will be able to withstand any unforeseen circumstances and you can move forward to investing.

Company 401(k)

Retirement savings plan offered by an employer. Contributions are pre-tax, and the money grows tax-free until the employee begins taking distributions (typically upon retirement).

Traditional IRA

Fully deductible if you don't have access to a 401(k). If you do have a 401(k), it's only fully deductible to a certain point, then the deductibility is phased out. Taxes are deferred until you start taking distributions. 

Roth IRA

No deduction. However, when you do take distributions, they are tax-free. And, unlike traditional IRAs, you aren't required to withdraw funds at a certain age for the original owner Individuals can leave Roth IRA accounts to grow, while taking distributions from their traditional IRA.


Backed by an insurance company, annuities are often overlooked. Annuities come in two main varieties: Fixed (with a fixed interest rate), or variable, where you can invest in the markets. In both cases, they provide tax deferral – you don't pay taxes until you withdraw funds.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax  treatment may change. Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value. This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you.

8. Investing emotionally

If you are losing sleep at night over your investments, you may be  invested too aggressively. Even if you are properly invested in a diversified portfolio, it's common to react emotionally and want to pull money out when the markets are volatile. Yet, when you look at 10-year periods in the stock market, 90% of the time, the market is winning.3 Those are good odds. However, it comes with a big caveat: The market requires you to be invested for the long-term, and invested appropriately for your goals, time frame, and your tolerance for risk.

So, what should you invest in? A comprehensive portfolio is well diversified. Diversification can potentially smooth out the up-and-down swings that cause the sleepless nights.**

9. Not considering health costs

Drawing up a budget for later in life? Take your health-care allotment and increase it. Then increase it some more: During retirement years, it's common for individuals to have higher medical bills, spending more in retirement than many of us estimate in our younger, healthier years.

Overall, people tend to be under-insured. It is important to review your insurance policies, and reflect on your lifestyle choices: Are you adequately covered? The same coverage you purchased in your 30s is often not going to cut it for your 50s or your 70s. Consider long-term care insurance. The U.S. Department of Health and Human Services projects that 70% of all individuals turning 65 will need some form of long-term care during their lifetime.4  Long-term care is expensive and can derail your retirement plans.

Also, ask your parents if they have any long-term care coverage. Without it, you may end up taking care of a parent in your home, placing a strain on your finances and investments. Often one of the spouses must stop working to provide in-home care. And -- much like caring for a child – parents require food, medical care and a new room, perhaps even a customized mother-in-law suite. Remember, the less money you pay in overall care costs, the more money you can invest or keep in your retirement fund.

10. Sticking to the same plan

At age 20, you may want to travel the world when you retire. By age 40, you might plan on writing a novel. At age 60, you dream of having a ranch where your grandkids can play. It's important to have a plan; a living, breathing document. It's also important to be okay with changing the plan.

After all, life is not what it used to be. People used to have very short retirements, due to lower life expectancies. But now, individuals live and often work much longer. In fact, people are creating new careers: opening wineries, going to culinary school, starting new businesses - bringing in the revenue."

A professional can work with you to, check in on your goals and how your future is shaping up. Your working document is one that can change as your ideas and dreams change.

11. Putting too much pressure on yourself

It's natural to get caught up in the market, thinking it's better to go as fast as possible. However, all that's needed is to determine how much you need, and when you need to get there. The most important goal is not to get there the fastest: We're not racing anybody. The most important part is just to get there safely and on time. Don't take too much risk and don't be too hesitant. Just take the appropriate pace and you should get there.


Financial advisors* with BECU Investment Services are here to help. They can assist you on your retirement journey, ensuring you are on the right track to achieving your financial goals. Set up a complimentary consultation or call 206-439-5720.

*Financial Advisors are registered with, and Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. Insurance Products offered through LPL Financial or its licensed affiliates. BECU and BECU Investment Services are not registered broker/dealers and are not affiliated with LPL Financial. Investments are:

Not Credit Union Guaranteed
Not Obligation of BECU
May Lose Value

**There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Stock investing involves risk including loss of principal.

BECU Investment Services Corporate Office located at BECU, 12770 Gateway Dr., Tukwila, WA 98168. BECU, BECU Investment Services and LPL Financial are separate entities.

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of all 50 states.