60% of Americans invest too conservatively for retirement, study shows

Given the mounting costs seniors face once they stop working, from housing to transportation to healthcare, it's more crucial than ever to start saving for retirement early on. But saving early is only half of the equation. An equally important component is choosing the right investments to allow your money to grow, yet new data suggests that many of us are faltering in this regard. According to a recently released Wells Fargo study, about 60% of Americans are saving too conservatively for retirement by focusing on avoiding loss instead of maximizing growth. And while nobody likes losing money, if you err too much on the side of caution, you risk coming up short when retirement rolls around.

Who's afraid of a little risk?

It's one thing to be risk-averse as an older investor near retirement. In fact, if you're in your 60s, it's actually a smart idea to start moving away from riskier investments like stocks and put a large chunk (though not all) of your portfolio into more conservative options, like bonds. But if retirement is decades away and you have time to ride out the stock market's inevitable fluctuations, staying away from stocks is a bad move, as it can stunt your portfolio's growth.

Now what's interesting about the Wells Fargo study is that this conservative approach to investing isn't limited to a particular age group, but rather, is prevalent across the board. Roughly 60% of those in their 30s, 40s, and 50s all share the same attitude about minimizing risk rather than capitalizing on growth opportunities.

Oddly enough, a slightly smaller percentage of 60-something investors have the same attitude. Only 52% of those in their 60s agree that it's better to focus on avoiding losses than take steps to maximize growth. But no matter your age, it's important to understand the lost opportunities that come with conservative investing.

Watch out for these retirement gotchas
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Watch out for these retirement gotchas

Failing to Contribute in Time for Taxes

Yes, there can be a right time to contribute to your retirement account. After all, you do want to cash in on the tax benefits of your 401k, right? Moreover, you don’t want to be responsible for making a lump sum contribution to your retirement account, lest you go over budget or sink your emergency funds because you forgot to make regular contributions throughout the year.

Rather than wait until tax season to contribute to retirement savings, opt instead for automated payments. Adjust your contributions so you’re reaching the maximum contribution limit each year — and don’t forget, you can make catch-up contributions if you’re over the age of 50.

Scheduled payments to your retirement account alleviates any worries you might have over not meeting savings goals for the year. Plus, it takes the legwork out of actually saving.

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A stack of retirement account statements. Shot with shallow depth of field.

Paying High Advisor Fees

Like mutual funds that can carry surprisingly high expense ratios, some financial advisors charge high fees, and they don’t always make those fees easy to understand or identify. Sometimes it’s a percentage fee, and sometimes it’s in basis points, which imagines each percent as 100 basis points or a fraction of a percent.

In any form, financial advisor fees can add up to hundreds of dollars per year. Additionally, the financial advisor could be reinvesting the money into other actively-managed funds with their own hidden fees, which can further eat away at returns.

Research your options when it comes to finding a financial advisor. You can opt for a lower-cost online advisor, which can cut those fees to 0.25 percent, for example, or find financial advisors who charge by the hour, which can be an expense that’s easier to track.

Related: 10 Things You Need to Know Before Choosing a Financial Planner

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Not Spotting the Hidden Cost of Annuities

An annuity is a form of an insurance contract built into a 401k that invests the account holder’s money and, in return, pays out a steady income either in the future or right away. Retirement annuities offer tax advantages that appeal to many people. These investments can grow tax-deferred savings.

Unlike a 401k or IRA, annuities have no contribution limits, making them a useful tool for people close to retirement age and needing to catch up.

When it comes to setting up an annuity contract, however, people should be aware of the potential fees. Annuities can come with surrender charges, management fees and mortality and expense charges. You’ll want to review these fees closely to see whether an annuity works with your retirement strategy — or if you’re better off sticking to more traditional savings plans.

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Falling Into the Reverse Mortgage Trap

Not everyone can pay off a mortgage by retirement, and if you can’t, you need to consider the cost of your mortgage payment plus property taxes, homeowners insurance and all those random repair costs when things go wrong. Facing these and other financial concerns, some retirees who consider themselves cash poor but “house rich” turn to reverse mortgages.

But reverse mortgages are only suitable for people in specific circumstances and should be used carefully and strategically. You’ll want to consult a mortgage or financial advisor before proceeding with a reverse mortgage.

One of the biggest risks behind a reverse mortgage is the risk of losing your home. If you need to move out, your loan could become due. And, of course, you’ll need to fork over a lot of money for fees, which only eat more of the money you’re taking out against your home equity.

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Getting Suckered Into a Timeshare Scam

Whether your retirement plan includes downsizing to a tiny home or moving to a senior community, you need to watch out for housing pitfalls like high homeowners association fees and timeshare traps that target retirees. Any home purchase should be thoroughly researched, but people planning out their retirements on fixed incomes need to be particularly cautious of 55-and-over communities and timeshare opportunities that sound too good to be true.

Timeshare companies use high-pressure sales tactics to convince people to buy properties that typically come with annual maintenance fees and blackout dates on when owners can visit.

A common scam in recent years that targeted senior citizens in particular is when a person posing as a reseller calls the timeshare owner saying he has a buyer or poses as the buyer and then asks the owner for an amount of money up front to process the sale, according to a report from the California Department of Real Estate. The owners never see the money or hear from the scammer again. In legitimate sales, commissions are paid at the time of the sale, not up front.

The tens of thousands of dollars that people invest in timeshares they are only allowed to visit a few weeks out of the year could pay for numerous vacations across the U.S. and abroad. Don’t get trapped into a so-called dream vacation property that could become a nightmare.

Keep Reading: 42 Ways to Save for Retirement

(Adina Tovy via Getty Images)


Making the most of your investment dollars

While the annual contribution limits are currently $18,000 for a 401(k) and $5,500 for an IRA ($24,000 and $6,500, respectively, if you're 50 or older), most of us can't max out our retirement plan contributions because we need that money to cover our living expenses. But you can choose the right investments to maximize the limited amount of money you're able to save.

So where should you put your money? While your portfolio should always contain some sort of mix, a more aggressive, stock-focused portfolio typically offers the greatest opportunity for growth. And as long as retirement isn't right around the corner, there's no reason to shy away from stocks despite the risks involved.

The following table highlights the difference between a conservative investment strategy and one that's far more aggressive:

Investment Style

Average Annual Investment Return

Total Accumulated Over 30 Years (Assumes $300 Monthly Investment)




Moderately conservative



Moderately aggressive







As you can see, investing $300 a month over the course of 30 years will leave you with an ending balance of roughly $146,000 if you play it safe. While that's a decent chunk of change, that amount almost triples under an aggressive, stock-focused investment strategy. Even if you were to play it somewhat safe and fall somewhere in the middle, you'd still wind up with anywhere from $202,000 to $284,000 in total -- far more than what you'd have in our most conservative scenario.

Remember, saving for retirement isn't just a matter of having more cash on hand to travel and go out to dinner; it's a matter of being able to cover your basic living expenses. Most retirees need 70% to 80% of their pre-retirement income just to stay afloat financially once they stop working, and Social Security is only designed to replace 40%. That means you'll need to save enough to account for 30% to 40% of your pre-retirement income on your own, and if you're too cautious, you may not reach that goal. And while there are risks involved in stock investing, at the end of the day, you're taking even more of a risk by playing it safe.

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