2. Being too conservative: it is easy to understand why a lot of us prefer to be conservative in these brutal markets but this is also the biggest mistake we can make unless we have enough money to cover all our income needs far into the future, counting for inflation. Our biggest task is keeping up with inflation and we cannot do the job adequately unless we keep a healthy slug of our portfolio in stocks.
3. Not counting social security as a bond investment in asset allocation: when you retire, you will get a fixed income from social security just like a CD or a bond. Same thing with a pension. When you allocate your assets, count these sources of income as "bonds" or "fixed income".
4. You need 70 percent of your current income for retirement: this is almost always wrong because most retirees spend more than they did when they were working, at least in the first few years of retirement. You need to look closely at your monthly expenses after retirement but it makes a lot more sense to aim at replacing your entire pre-retirement income if not more. Do you care if your overshoot your goals?
5. Assume you will be in a lower tax bracket after retirement: This may hit you with higher tax bills than you expected when you pay tax on your IRA and 401(k) withdrawals. You need to look at your expected tax bracket every year, specially if you are near the mandatory distribution age of 70 1/2.
Jay has retired after more than 2 decades on Wall Street and writes on investments and finance topics. If you find this article to be of value, please check out his latest diversions at Daybed Bedding Sets and Day Bed Covers.
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