Costly mistakes in retirement planning – troyrecord

When migrating from company-sponsored defined benefit plans to defined contribution plans such as 401(k), 403(b), or deferred compensation (457), it is critical to select the right plan, allocate your assets according to your goals, and identify the appropriate plan(s). ) Beneficiary(s).

We have been in business for over 25 years and have witnessed some failures in every category.

Assuming you are in a 30% combined federal and New York State tax bracket, it is generally to your advantage to choose a retirement plan that allows for tax-deductible contributions. Using the above tax brackets as an example, your tax savings would be $300 for every $1,000 paid into the plan. Therefore, saving $1000 would only cost you $700. The other $300 would be tax savings.

As a rule of thumb, remember that it’s better to choose plans that allow for tax-deductible contributions if you’re in a relatively high tax bracket than plans that don’t allow for tax-deductible contributions. The opposite is true if you are in a low tax bracket.

Most company-sponsored plans now offer tax-deductible contributions defined as Traditional 401(k), 403(b), or 457, and Roth 401(k), 403(b), and 457. Traditional plans offer tax-deductible contributions and taxable withdrawals Roth plans offer non-deductible contributions and tax-free withdrawals. Keep in mind that whether you choose the traditional or the Roth, both can levy taxes and penalties should you need the money before normal retirement age.

Please check with your tax advisor before investing.

After choosing the plan that suits your needs, your next task is to fund the plan. Under this category, try to deposit at least an amount that maximizes your Employer Match, if there is one. Most employees tend to become overly conservative with their investment strategy or to concentrate their investments in company stocks. Both are mistakes. As a rule of thumb, we would recommend for those under 50 with more than 10 years to retirement not to invest more than a 3:1 stock to bond ratio.

Those over 50 aged five to 10 should use a stock-to-bond ratio of no more than 2:1, while those within five years of retirement should use a 1:1 stock-to-bond ratio. Those under 40 with more than 20 years until retirement should invest almost their entire assets in the stock market. Again, every situation is different, so consult your advisor.

One asset allocation mistake we’ve also noticed is an over-concentration of contributions and accumulated funds in the stock of the company that employs you. In the Capital District, some General Electric employees have paid up more than 50% of their company stock. We believe that by doing this you are taking on an unreasonably high level of company-specific risk and building an undiversified portfolio that has low correlation and a low level of predictability relative to the overall stock market.

This can lead to high volatility and poor performance.

On the other hand, make sure you get mandatory pension distributions when you retire and reach age 72 ½. Coordinate this with your planner and/or tax advisor. Also keep in mind that the tax on the payout that should have been made but was overlooked is fifty percent, a pretty hefty penalty.

Let us now come to the designation of one or more beneficiaries.

First and foremost, make sure you designate a beneficiary. If you do not select a beneficiary, your estate will become the beneficiary by default. If you are married, you lose the valuable spousal rollover option as well as the option to extend the payout beyond the life expectancy of the beneficiary. Finally, be sure to designate conditional beneficiaries who will receive the proceeds of your retirement plan in the event that the primary beneficiary dies before the account owner.

Please note that all information is for general information purposes only and should not be taken as specific recommendations. The authors’ opinions are not a recommendation to buy or sell the stock or bond market or any security contained therein. Securities involve risk and fluctuations in capital will occur. Please research any investment thoroughly before committing any money or consult your financial advisor. Please note that Fagan Associates, Inc. or its affiliates may buy or sell securities for itself, which it also recommends to clients. Consult your financial advisor before making any changes to your portfolio. To contact Fagan Associates, please call (518) 279-1044.

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