10/24/2011 6:15 PM ET|
5 ways to sabotage your retirement
You may not necessarily be thinking of retirement when you celebrate a promotion, but maybe you should be. Plan -- and save -- now to avoid worry and want later.
Retirement isn't impossible for most of us, but we often get so wrapped up in navigating our busy schedule that we unknowingly sabotage our own retirement. Look into these five specific areas of your plan to see if you are doing harm to your goal of a comfortable retirement.
Not negotiating better pay during the hiring process
In this economy, it's easy to be grateful for even having a job. But you are definitely shortchanging yourself if you don't negotiate for higher pay once an employer presents a job offer. A higher starting salary sets you up for bigger paychecks down the line because most raises are calculated as a percentage of your current pay. The worst an employer can say is no. And unless you are very rude in your negotiations, it's highly unlikely that an employer will take back the original offer because you asked if there is any room for improvement.
Working less than 35 years
You could be drastically cutting your Social Security checks without even knowing it if you decide to retire early. Your Social Security checks will be based on your 35 highest annual salaries. (The Social Security website has a tool to estimate your benefit.) If you work less than 35 years, you get a zero averaged in for each year that you didn't work. And it's usually a good idea to work even more than 35 years to cancel out unfortunate years which you didn't work much due to layoffs or your lower salary at the beginning of your career. (Are you saving enough for retirement? Check with MSN Money's calculator.)
Letting lifestyle inflation creep in
It's easy to spend a little more each time your income increases. Spending more money improves your quality of life, allows you to celebrate your achievements and helps to keep you motivated. Although money isn't just for hoarding, it's important to also save for the future as your paychecks grow.
Withdrawing more money when investments perform well
If your retirement plan includes owning volatile investments like stocks, you should know that the performance of those investments can vary widely from year to year.
Let's say you had $500,000 invested in 2009 and started your 4% withdrawal at $20,000 a year. When 2011 rolled around, you probably had more than $500,000 of liquid assets available even though you withdrew money for two years. Seeing that you now have more money, some people might start to inflate their withdrawals and take 4% of the new total. If your account balance grew to $700,000, a 4% withdrawal is $28,000 instead of $20,000. But what if the stock portion of your portfolio later loses 20%? Those who stay with their original $20,000 withdrawal probably won't run out of money, because the down years were already accounted for.
People who take out more money in years when their investments perform well increase their risk of running out of money because that level of investment growth is unlikely to continue forever.
Thinking there is always tomorrow
If you consistently put off saving, you will not have enough saved to retire well. For most people, retiring comfortably takes years of diligent saving. The earlier you start saving, the more time your money has to accumulate interest and grow.
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The success formula today hasn't changed one bit from decades ago. Work hard, save, invest, and don't live beyond your means. I think one of the worst mistakes people make is letting someone else manage their retirement funds.
It does take some effort and a learning curve but you will do much better self directing your investments. When changing jobs, never roll over your 401K into the new company plan, set it up at a bank where you make the buy sell decisions. Wall street is your worst enemy if you don't do your homework but can be your best friend if you do. Like anything else in life, the more work you put into something the more benefit you get out of it.
I dont know much about investments (and continually trying to learn) and I myself do have a 401K and a pension. I will say after watching my parents/family members, and other folks I know..one thing is for sure...NOTHING is gauranteed!
I always advocate savings (not to hoard every penny so that your quality of life is severely diminished) and being careful with spending but there are some events that you just cant plan for...sickness/disease of you/your spouse/child and if your healthcare doesnt cover it, your screwed!
Im relateively young (32) now but I worry sometimes that all the responisble things Im doing now to prepare for my retirement (future) will be all for nothing to be humbled by something out of my control. (wether its sickness or wallstreet)...its like "whats the point???" runs through my head when I see people who worked hard, saved, did everything they were supposed to do (live below thier means, take care of thier health) just to be wiped out involuntarily...its scary!
OH yes put your money in 401K's so wall street can pay enormous bonuses so when you retire your 401K is worthless.
OH yes put your money in an IRA so the polititions can steel it from you and dont even say sorry. They need your money so they can hold office for one term and have all the drug and medical coverage the rest of thier lives at YOUR expense.
OH in vest in the biggest rip off YOUR unions. LIKE I DID and then they said sorry we are out of money so you get nothing for retirement. Did the goverment do anything? HELL NO.
Cheaper than me is right, try to get medical coverage that is worth anything when you retire. This covers that, that covers this, but nothing covers what ever is wrong with you. and you pay for.
OH yes put your money in the Bank. what a joke. try to get it when the bank closes it doors. you need medicine, medical treatment, but you can not get your money.
Ask a government official for help.HA HA HA HA
VOTE EVERY ONE OF THESE BASTARDS OUT OF OFFICE AND ELECT NEW PEOPLE THAT WILL WORK FOR US. THIER EMPLOYERS.
This article is lame! I listened to the financial advisors for the last 20 years. Their working interest was not for me ... more concerned about it's their own pockets! Average salary for them is $350,000. That was on NBC the other night. What ever you do, don't mess with Wall Street! They might have to work for that kind of money. I feel for the younger people of today. No job, no healthcare, no real future! Children of friends of mine have to go over to Asia to find a job. Yes, we were sold out a long time ago.
Ten years ago, when I left the employment of a large financial services firm, I moved my 401-k into two fixed-indexed annuities. Both have doubled in value in that period of time and I haven't had to worry about the stock market. I have read all these articles about the dangers and expense of annuities, but what I know to be the truth is that my money was safe and now I can begin to enjoy it without worrying about out-living my funds.
I went to school most of my life (at least 14 years after finishing High School), I have worked hard, paid my bills and education loans ($$$$$$). I have been saving and enjoying what I can buy for the family. Paid for my 3 kid's private college ($$$$$) <-- fortunately they are great students and qualified for merit based scholarships (not full scholarships, cuz Daddy makes too much).
I've lost a bunch on the stock market lately thanks to all of the elected morons and thieves who have been raping and pillaging all of our public and private (indirectly) coffers and still want to tax us more!
Retirement? Ha! I'll be like Marcus Welby and die on my feet working and helping my sincere patients (keeping the trial lawyers and sue happy patients off my back) while trying to take as many vacations that I can in order to prevent burn out ( there is a big shortage of Physicians and medical personnel in the USA and the rest of the world <-- hint for your kids and those young enough to do so)!
Tell your kids to stay in school and get educated and get a real career so that they can afford to live like our grandparents lived long ago (comfortably)!
My .02 cents.
My 401K was a great savings tool. However, it's a bad investment tool. Let me explain. Since retiring 2 months ago, I decided I could no longer sleep well with the ups and downs of the market. I put everything into a fixed 3% interest account. I'd rather make a little than lose a lot.
When I calculated the earnings I was shocked! Let's use $100,000. $100,000 at 3% yields $3,000/yr. Not really. It's subject to income tax. My Fed and State income tax is 20%. That's $600. So, I actually have $2,400/yr on $100,000 in a fixed account. Not really. The govt. says we are having 3.6% inflation. On $100,000 that's a purchasing power loss of $3,600. That's real! When I balance the loss to the gain (after tax) I am losing $1,200/yr, or $100/month. That's right. Even though I have $240/mo in hand, I am actually losing $100/mo. That is not smoke and mirrors. That is reality!
What to do about it? My opinion is to buy real estate in the buyer's market (Las Vegas, Phoenix, and parts of Florida). Rent them out, using a rental management service, for a positive cash flow. These homes, once the glut is cleared, will rebound to double, triple, or even quadruple the price now paid. How long? Give it 10 years, or less, for that to happen.
I so believe in what I just wrote, that I am closing on my 1st home in Phoenix in 3 weeks. I plan on buying, and renting out, 4 more. I will empty my 401K and ride the real estate market. My returns will be much greater than the guaranted loss that I am currently experiencing. And, with a professional rental agency involved, I don't have to live in Phoenix, or Las Vegas, or some part of Florida. I can continue to live in Montana.
So, what if you're still working? I say, take the money out, pay the income tax, pay the penalty, and buy real estate. Actually, no, follow your own instincts;I'll follow mine.
Unless you have a really high income, saving for the future is difficult and it is a full time gig. It can be done though! My wife and I both work and earn a good living and have managed to put back a decent amount of money. However, it is tough to stay disciplined on a regular basis and work towards a goal of having a high net worth. It takes several things to do this successfully over the long term- constant contributions, attention to your investments, diversification, good risk management and the ability to turn away from the constant lure of consumerism.
It's not that I don't care about the goings on with Wall Street or Washington- I'm simply powerless to much about it. That being the case we do the best we can under the circumstances. Likewise I don't really give any credence to the occupy people. If they spent time working instead of "occupying" they might have an easier lot in life. My wife and I are building our humble dream one brick at a time. It takes time. Lots of time. It takes discipline too -and lots of it. A lot of people that I see complaining about their financial situation don't work that hard. Additionally, the second they get a raise or a bonus they blow it on a vacation or upgrading their car (because they can now afford a bigger car payment).
I read the Millionaire Next Door and I hated it. I hated it because I realized that it's true. I realized that in order to have some money later you had to pay yourself first and hold back on lifestyle to do it. Unless you make a LOT of money or you inherit / win some, you have to save, save, save and invest, invest, invest.
My two cents...
Should I pay off my house when I get to 59 1/2 when I am able to take the money out of my 401 K ?
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