4 Mistakes That Will Kill Your Retirement – Pt. 1

As you near retirement, no decision is harder than what to do with the nest egg you’ve spent years building up. The crucial decision you face is whether to roll your workplace retirement plan into an individual retirement account. Then, how do you invest the funds? The average 401(k) balance for high-income workers 60 and older is $414,000. Those big sums are catnip to financial pros. This includes advisers giving misleading advice that could tank your retirement savings! No two rollover disasters unfold the same way, but some rollover problems tend to crop up the most. These are the four most common mistakes that will kill your retirement:

1. High Fees Chip Away at Your Savings

Lured by a promise of higher earnings or guaranteed returns, you could roll your money into an investment that’s far more expensive than what you already own. Financial advisers gunning for IRA rollover dollars like to pitch variable annuities, insurance products that allow you to invest in stock and bond funds, tax-deferred, and later convert your balance into regular income. The drawback is the high fees you’ll pay every year for a VA—typically 2.4% of your assets for investment management and extras like income guarantees, according to Morningstar. But the more serious trouble comes when an adviser won’t stop at one, exposing you to large penalties. In any given year, 40% to 60% of variable annuity sales are switches, according to the Insured Retirement Institute. Early-exit fees on top of even moderate annual expenses can seriously erode your retirement savings.

2. You Needlessly Give Up a Sure Thing

An adviser might persuade you to cash out your pension, perhaps by suggesting you can earn higher returns. Judson Lee, a lawyer for the Mississippi investors, says the Morgan Keegan broker often noted that pensions wouldn’t let them leave an inheritance, while investing lump sums with him would. When given the chance, 56% of workers take a pension as a lump sum, according to a study by the Employee Benefit Research Institute. That could be smart in certain cases, but cashing out is definitely in an adviser’s interest. Additionally, cashing out can backfire over time, and with a pension, those who die early subsidize folks who live a long life.

Stay tuned for Pt. 2 of “4 Mistakes That Will Kill Your Retirement”, where we cover the final two most common mistakes that will kill your retirement.

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