Whether you’re a seasoned investor or you’re just getting in the habit of putting money away, saving for retirement takes discipline and strict adherence to a well laid-out plan. Sometimes it may seem far away, but preparing now for the time when you’ll be done bringing home a regular paycheck is critically important. And unfortunately, the prospect of running out of money during retirement is a very real possibility. To make sure you’re on the right track with your retirement savings, take a moment to review the following mistakes investors make, because recognizing them is the first step in avoiding them.

Forgetting about inflation. Since the annual rate of inflation can seem like such a small number, you may not realize just how much damage it can do to your retirement savings. But because of this gradual increase in prices, your cost of living will likely double, or even triple, over the next 20 to 30 years. Conducting a simple financial analysis now — taking into account your current expenses, inflation, taxes and annual savings — will help to ensure you’re prepared to keep up with rising costs.

Lack of proper asset allocation. The term asset allocation refers to the combination of stocks, bonds and cash in your portfolio and their proportions to one another. The main goal of allocation is to balance your risk and take advantage of return potential at the same time. If your assets are not properly allocated, you could be investing too conservatively or exposing your portfolio to undue risk, depending on your stage in life and your risk tolerance. In either case, having your portfolio out of line with your financial goals only hampers your savings progress.

Underestimating taxes. Just as inflation can eat away at your investment savings, taxes can take a hefty toll on your money as well. Including tax-deferred accounts in your retirement plan can lessen the blow, allowing your money to accumulate free of taxes until the time you choose to withdraw funds.* Simply put, this leaves you with more money to generate more retirement income for a longer period of time. Examples of tax-deferred savings options include annuities, IRAs and 401(k) plans. Roth IRAs also provide tax-deferred savings with the added benefit of income-tax free withdrawals during retirement if certain conditions are met.

Underestimating retirement spending. Another big mistake people make when planning for retirement is assuming that they will not need nearly as much income to sustain their retirement lifestyle. However, some find themselves spending as much as 85 percent of their pre-retirement income — or even more — once they reach retirement. Taking more vacations, making additional home improvements, and even eating out more often can all add up and put a strain on your retirement income. Most people also fail to plan for health care, long-term care and other unexpected expenses.

Unrealistic investment expectations. If you try to time the market by staying out when prices are down and looking for bargains to jump back in when it’s up, chances are you’ll see it’s a strategy that seldom works. Saving for retirement requires a long-term outlook, and staying focused on your goals is essential. Make a plan and then stick to it by getting in the market and staying there.

While these are just a few of the mistakes investors make, you can see that it’s easy to get off track with your retirement savings. Regardless of where you currently find yourself on the road to retirement, take the time now to plan ahead so you can avoid making big mistakes.
*Any withdrawal before the age of 59 ½ may be subject to a 10% IRS penalty, and taxes will be due upon withdrawal.

Jeff Keasler and Mike Burroughs, VP-Investments
A.G. Edwards and Sons