Most people hope and dream that they will have a successful and enjoyable retirement. So if you want your golden years to be golden, there are some serious things to consider long before your retirement.

Everyone knows they are going to have to save and invest for retirement. One problem is many people don’t invest anywhere near enough for retirement. And some people, even those who do manage to save, make errors over the years that reduce their chances of having a happy and secure retirement.

24/7 Wall St. is familiar with the adage “it takes over $1 million to retire comfortably.’’ This may be an arbitrary figure, but what is not arbitrary is it takes discipline and it requires avoiding mistakes and pitfalls to have a happy retirement.

When you think about retirement, you have to consider your expenses for living. These include the cost of your home, food, health and medical care, transportation, vacations, entertainment, and basic spending needs.

While it is essential for workers to start thinking about retirement in their 20s, many savers don’t get around to preparing for their golden years until their 40s or 50s. Some people don’t think about retirement until they are just a few years away from retirement. It’s never too early and it’s never too late to start saving.

This article may seem targeted to investors in 401(k) and individual retirement accounts (IRA), however, these principles apply to everyone who has to save for retirement.

For the vast majority of Americans, there will be Social Security benefits for them in retirement. And your company might even have a matching plan or some form of contribution to help you invest for retirement. Still, it’s likely that it’s going to be on your shoulders how you should have that money invested.

Click here to see some mistakes people make that can easily steal away their retirement plans.

1) Having your nest egg in retirement funds can come with tax penalties and high fees.

People aren’t generally saving enough for retirement and it might seem like common sense to only invest in tax-deferred retirement plans. This is a mistake. Most people are going to encounter hard times over the course of their lives. If accessing retirement funds to pay for life’s necessities is bad, then you better have some cash, stocks or bonds, or mutual funds or exchange-traded funds outside of traditional retirement funds that you can access for an emergency. What if you have an outstanding medical bill, need a lawyer, or are out of work for some time?  Having your nest egg in retirement funds can come with tax penalties and high fees if you access the funds ahead of retirement.

[in-text-ad]

2) It’s a mistake to redeem retirement plans early.

Many people saving for retirement run into hard times over the course of their lives. Maybe they get laid off, maybe they need money for a house, or maybe they just want to buy something. One common mistake people make is redeeming retirement plans or withdrawing funds. This can wreck your golden years because you may be reversing years’ worth of efforts to save for retirement. Withdrawals from qualified plans are generally taxed as ordinary income and may be subject to a 10% federal tax penalty. Borrowing against your retirement funds is not as bad as an outright withdrawal, but you’re going to have to pay that money back with interest, and many qualified plans only allow the money to be paid back in a one-time, lump-sum manner.

3) Putting up with high fees and commissions.

It is no secret some mutual funds and some exchange-traded funds (ETF) have much higher charges for investment management fees than others. Some brokerage firms charge too much to administer and report about retirement plans inside of a 401(k) structure. And some brokerage firms have commissions for IRA accounts that are much higher than those of rivals. There has been a trend in recent years for mutual fund and ETF management firms to lower their annual management fees. Some firms may have a $25 charge even if the transaction is just a few hundred dollars. And some 401(k) plans have had mutual funds that take out too much money up front or each year (A, B or C shares). Some funds even have withdrawal penalties for investors.

4) Making poor retirement-fund option decisions.

Whether you invest for retirement in a 401(k), IRA or other qualified plans, some of these can be too limited or too general to help your retirement goals. The rise of target date funds — mutual funds that automatically reset the asset mix of stocks, bonds and cash equivalents in a portfolio according to a selected time frame for an individual investor — has helped to improve some of these efforts. However, many qualified plans leave workers without enough choices to make enough money to enjoy their golden years. Some 401(k) plans only offer a few broad mutual funds. Others offer dozens of choices. Some 401(k) plans allow for retirement savers to invest in ETFs, and some even allow for them to hold individual stocks. There is a real risk that if your choices are too few, fees along the way can wreak havoc if you have few options.

[in-text-ad]

5) Misallocating your retirement funds.

A company can set up a retirement plan, but it’s up to you to decide how to invest that money. Many companies won’t allow those who administer your retirement plans to make any recommendations at all. If you are in your 20s and decide that equities are too risky, you could invest in bond funds, but they compound at just 2% or 3%. Now consider the risks of being in your mid-50s and only investing in stocks — one major market sell-off or bear market might wipe out 25% or 50% of your retirement account with too few years to make it up. Some plans offer the simple “cash and money-market funds” for savers reluctant to pick stocks or bonds. However, these come with very limited returns. There is a saying: “Cash never rallies.”

6) Not taking advantage of ‘catch-up’ rules.

You know that many people under-save for retirement, but did you know you can “double down” as you get closer to retirement? The federal government understands that you might have not saved in your 20s, 30s and 40s, so the IRS has provided catch-up rules. Starting at age 50, savers can start putting away more than the $18,000 maximum annual contributions in 401(k) plans and more than in traditional IRA and other IRA plans. These amounts can range from $1,000 to $6,000 a year in added contributions to allow you to save for your retirement. Most people earn more and are better at planning in their 50s than they were in their 20s.

7) Blowing off employer offers of matching funds.

While you keep hearing that you are on your own, many employers match their employees’ 401(k) contributions. This can vary in percentages or in dollars per year, and it may be a one-to-one match (100%) or a portional match (say 50%) up to a certain part of your income. Some employees think they cannot afford to contribute to their 401(k) plans, and others may decide to spend the money rather than invest it. Think about this scenario: You invest $5,000 into your 401(k) and your employers puts in the same exact amount as matching contribution to your retirement. Another employee is earning the same amount but chooses to only invest $2,000 per year. That employee, by not investing the same $5,000, just told the employer he or she did not want a free $3,000 put into a retirement plan.

[in-text-ad]

8) Trying to time the markets.

Chances are high that any given saver is bad about timing the financial markets. Many investors panicked about their 401(k) and retirement funds in late 2008 or early 2009 during the financial crisis. The financial media had already dubbed this period as the Great Recession, and some financial pundits were predicting an outright implosion in the stock market. Some of those investors sold out of their stocks at the bottom and went into cash or short-term bonds, and did not get back into equities until the markets had fully recovered. This means they made close to zero while the stock market rose more than 100% from the bottom. Some years in a bull market have only seen the biggest gains take place from a handful of days in any calendar year. There are very few market wizards who win year in and year out.

9) Ending annual retirement contributions.

While timing the markets can be challenging, there is an even worse offense in deciding to stop your annual 401(k)/IRA contributions. This mistake is quite common and understandable. Maybe it was because a worker was laid off, or maybe an unexpected illness kept someone out of work. But some investors and savers become discouraged over the years, or maybe they become so cynical about the markets that it’s an excuse not to save and invest. Imagine if a saver in his 40s stopped putting in new money in the market at the end of 2008 and did not start contributing again until the rally of 2017. That person missed the second-greatest bull market of modern times. Even if they let their old investment fund money grow, they missed out on potentially tens of thousands of dollars (or more) that could have paid for their retirement.

10) Chasing fads and hot trends.

Retirement savers know their money has to grow over time. While misallocating one’s funds is one risk, there is an even greater danger by chasing hot fads and sectors. There are now enough mutual funds and ETFs that target only certain sectors or specific stocks that it’s easy to forget about being too concentrated. Chasing the dot-com bubble by investing in internet stock funds at the peak in 2000 could have generated an investor 80% losses, and that investor might not have broken even until 2015. Now think about other recent fads pursued by investors — rare earth metals, 3D printing, alternative energy, emerging China stocks, genomics, stem cells, fertilizers, and on and on. It’s easy to see some sectors fall and some may never recover.

[in-text-ad]

11) Failing to understand how Social Security works.

Many people do not understand how Social Security works. It is important to know how the monthly payments are calculated and what retirement age you are really looking at. Social Security is based on your income over the course of your life and you pay for it every month. Retirement does not necessarily start at 65. Some people can elect to start receiving Social Security benefits at 62, but that comes with big restrictions and lower payments. Some people can delay until they are 70 if they want higher monthly payments. Using the simple Social Security calculator can give you insight into how much you can expect to get per month from your lifetime of contributions for your golden years. The rules around eligibility and/or age limitations may change drastically in the years ahead. Not knowing what your benefits will be can seriously hamper your retirement planning.

12) Not taking into account the unexpected.

Life is great when you are healthy and gainfully employed. Some employers are very understanding and supportive when workers get sick or injured on or off the job. But some are not. If you get hurt on the job, you might have recourse or some assurances. But if you get injured hiking, biking, driving or playing sports, it could interrupt your income and retirement plans. Chronic diseases such as cancer, diabetes, and other illnesses might take you out of the workforce. Savers also should be alert to politicians from both political parties making potentially harmful proposals about retirement funds, such as limiting contributions to 401(k) and IRA plans that can wreck retirement planning.

13) Too much spending, even if you are rich.

If some lottery winners go broke after winning millions of dollars overnight, imagine what would happen to the rest of us if we thought we had to have the best of everything. Big houses, luxury cars, fancy jewelry and watches, high fashion and trendy clothes can all distract disciplined savers. Now consider the insurance you may have to have for those things, as well as your other daily living costs. Being sensible on your lifetime choices for expenses will give you enough free cash to invest for your retirement.

[in-text-ad]

14) Getting caught up in hype of today, pain of tomorrow.

Most people do not work directly in the financial markets, so it is important to avoid thinking bull markets never end as well as believing that bear markets and recessions are the end of the world. The current bull market that has been going since March 2009 will not last forever. The Great Recession also came to an end without the stock market going to zero. Do not chase your tail based only on the themes or trends of a given day, week month or year. Warren Buffett may have put it best about chasing gains or panicking out of the markets: “Be greedy when others are fearful, and be fearful when others are greedy.” Maybe the greatest investor of the modern era knows a thing or two.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.