Not taking full advantage of tax breaks
A person's actual investments can be less important than the types of accounts used for retirement investing.
The tax-favorable 401(k) plans and individual retirement accounts, or IRAs, are a huge leg up in getting to retirement because they enable your tax-deferred earnings to compound.
It's unwise to pass up the opportunity to invest in a plan when your employer matches a portion of your contributions. That's because you're passing up free money -- the equivalent of refusing a salary increase when it's offered.
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Not saving enough -- or at all
Once you sign up, figuring out the best amount to contribute is the next hurdle. Not surprisingly, most people don't contribute enough.
The average contribution rate is 6 percent, says Anthony Webb, research director at the Schwartz Center for Economic Policy Analysis in New York and former senior research economist at the Center for Retirement Research at Boston College. Combined with a typical 50 percent match from the employer, the average employee saves 9 percent of salary annually.
"If the employee started (saving) at age 22 and contributed every year to age 66, that might possibly be enough. But if you add in gaps, late starters, etc., then the calculations that we have done at the Center (for Retirement Research) show that 9 percent is really, really not enough," says Webb.
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High fees in retirement plans, investments
From the expenses charged by mutual funds to record-keeping costs, fees add up. That translates to fewer dollars available for compounding and a lot less money at retirement.
Plan fees can run as high as 4 percent, but "an acceptable level is around 1.5 percent for everything," says Craig Morningstar, chief operating officer at Dynamic Wealth Advisors in Scottsdale, Arizona. That includes the mutual fund fee known as the expense ratio.
If plan fees are unreasonably high, participants should also ask if the plan is working with a professional plan fiduciary. A professional fiduciary can save a plan enough money to more than make up for their expense.
Workers can most easily control mutual fund costs by making smart investment choices. Since high fees can negate any outperformance above benchmarks, low-cost index funds are generally the best bet.
Focusing on only one risk
Most people need to get substantial returns on their portfolio to arrive at retirement with a decent-sized pot of money. That means investing in stocks is prudent for most.
A survey by mutual fund company Franklin Templeton found that more than a third of long-term investors, 37 percent, believe they can get by without investing in stocks at all.
Surprisingly, young people were most likely to say they plan to avoid stocks.
"Over 56 percent of 25- to 35-year-olds believe they can reach their investment goals without investing in the stock market," says David McSpadden, senior vice president of Global Client Marketing for Franklin Templeton Investments.
Avoiding stock market risk increases other types of risk, however. For instance, there's longevity risk, or the risk of outliving your money.
"You shouldn't think of short-term (certificates of deposit) and others as being risk-free assets. If you invest in CDs, you may have a guaranteed return of capital; but you don't have what is arguably more important, which is a guaranteed return on capital," says Webb.
Then there are the investors who follow the herd as the market is going up, investing in hot sectors on a whim, often taking on more risk than they might otherwise.
"It's not only being too aggressive, but not having a whole plan. When the market is going up, they take on too much risk for their investment profile. (Then) when the market pulls back their accounts, (they) see a decline and they go to cash without a plan on when to get back in," says Christopher Zeches, CFP professional and managing partner of Zeches Wealth Management in Phoenix and Tucson, Arizona.
In a similar vein, there are savers who manage to sock away money, but never come up with an investing plan.
Retiring with no plan for income
Retirement is a gradual process that involves some planning. Ideally, people begin to transition their portfolio into retirement mode years before they actually hang up their working hats.
Throughout their career, workers have lots of time to save money and wisely invest in a range of assets. As retirement nears, the mix of investments needs to change, moving away from growth in accumulation toward a distribution and preservation stage.
"They need to rebalance their portfolio to make sure their risk tolerance is reflective of their age and timeline to retirement," says Nancy Coutu, CFP professional and principal of Money Managers Financial Group in Oak Brook, Illinois.
That usually means scaling back equity exposure and increasing the amount of bonds in the portfolio.
Holding on to the hoarding mentality
After decades of saving and investing, turning that large account balance into a stream of income may hurt a little.
"I would at this point like to mention the A-word. That is the life annuity," Webb says. Very basically, immediate annuities are insurance against outliving your money. You give the insurance company a lump sum, and they agree to give you a certain amount every year until you die.
"People view it as a risky gamble that they will lose if they die young," says Webb.
"The other thing is that people have trouble going from piles to flows. If I tell you that a lump sum of $1 million is going to give you an income of only $40,000 per year, your reaction is, surely that can't be right," he says.
The alternatives to annuities -- living off of interest and dividends or using the 4 percent rule for withdrawals -- can leave retirees subject to market whims or pursuing investment strategies based on their need for income instead of a prudent approach that optimally balances risk and reward.