10 Ways to Ruin Your Retirement
There's much more to retirement planning than accumulating a large next egg. You'll need to invest and protect your retirement savings, account for health care expenses, and turn your savings into a stream of income. Unfortunately, there's a lot of room for mistakes that could force you to cut your standard of living in retirement. Here are 10 things that could derail your retirement plans:
Too much debt.
Americans are increasingly entering the traditional retirement years with credit card, mortgage, and other forms of debt. But carrying debt into retirement means your savings will have to support past expenditures, plus interest -- as well as your current spending. "If you have debt and you are going into retirement, I don't think you are ready for retirement," says
Underestimate how long you will live.
The average man who is currently 65 can expect to live until age 83, and a 65-year-old woman can expect to live until 85, according to
Retire too young.
Perhaps the biggest retirement decision you will make is when. Sometimes retirement is foisted upon you unexpectedly because of a buyout or layoff, or it is necessitated by a health problem or caregiving responsibilities. Retiring young means more years of retirement that you'll need to finance with savings. Monthly
Don't purchase enough insurance
Americans age 65 and older are eligible for
Over time, inflation will slowly decrease the spending power of your savings unless you take steps to protect it.
Neglect your social life.
Once you retire, there are no more work obligations and no one will be counting on you to finish a project or meet a deadline. It's easy to feel isolated. "A lot of people have been totally immersed in their work and have not taken time to develop outside interests, and when they retire they are just totally lost," says
Rely on a single source of retirement income.
While most working Americans get their income from a single source, retirees shouldn't count on any one income stream. "You should have between four and six sources of retirement income, and don't count on any one of them," says Gilgen. Guaranteed sources of retirement income include
Don't save enough.
There are many reasons why it's difficult to save for retirement. A home purchase, college costs, and even everyday expenses often compete with your retirement savings. A few easy ways to grow your nest egg include setting up a direct deposit into a retirement account, saving enough in a 401(k) account to receive an employer match, and remaining in a job long enough to be vested or eligible to keep the match. If you haven't saved throughout your lifetime, you generally can't make up for it by investing in high-risk and potentially high-reward funds close to retirement. "It's hard to make up for a lack of saving in a couple of years," says Christenson. "It's taking a huge risk and it usually works against people."
Fail to protect your savings.
As you approach retirement, you should shift your focus from growing your nest egg to protecting it. "When you get within five or 10 years of retirement, you need to start reducing your risk," says Christenson. Consider shifting some of your assets into more conservative investments. Avoid loans and early withdrawals from retirement accounts, the latter of which come with a 10 percent tax penalty and regular income tax on the amount withdrawn. Also, try to minimize the fees and taxes deducted from your retirement savings. Shop around for low-cost investments, contribute as much as possible to tax-advantaged traditional and Roth retirement accounts, and develop a retirement account withdrawal strategy that minimizes the income taxes you pay as you take money out.
Neglect to support a surviving spouse.
One spouse often lives considerably longer than the other. "You don't want the unhealthy spouse to use up all your assets and leave the healthy spouse destitute," cautions
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Personal Finance - 10 Ways to Ruin Your Retirement
(c) 2010 U.S. News & World Report