1. Inappropriate investments. Sometimes advisors review a potential client's financial picture and are dismayed to discover that although decades were spent saving for retirement, the money was languishing in cash or bonds instead of invested in the stock market. That means the person's retirement portfolio could be worth about a third of what it could have been if it had been invested more aggressively.
Other times, people take too much risk in the market at a time when they absolutely should not.
Advisor Jennifer Landon had a client who, before he came to her, cashed out of his pension plan when he retired in his mid-50s. He put the money in an individual retirement account and went whole hog in the stock market.
However, because he no longer had a source of income, he took advantage of Internal Revenue Service Rule 72(t).
Rule 72(t) allows you to take advantage of your retirement savings before the age of 59½, when there is otherwise a 10 percent penalty on early withdrawal. The withdrawals, however, are still taxed at your income rate. The drawback to taking advantage of Rule 72(t) is that you may deplete your retirement accounts well before the end of your life expectancy. By taking out your funds early, you are putting yourself in jeopardy in the future.
Once a 72(t) plan is implemented, you are locked into it.