3. Taking a loan against your 401k
Close to one in 10 workers with qualified retirement plans from their employers took out a loan in the 12 months leading up to its study, according to the Transamerica Center.
The center's 12th Annual Transamerica Retirement Survey, conducted among 4,080 U.S. workers, found that the majority of those taking out loans (42%) did so to pay off debt; 14% did so to buy a primary residence. Only 6% did so in response to medical bills, and even fewer (3%) found it necessary for tuition expenses.
Though commonly viewed as "borrowing from yourself," those who fail to repay can be saddled with taxes and penalties. Borrowing against a retirement plan also reduces the ability of those funds to earn interest, a loss that will compound in perpetuity. (Will your 401k provide enough income? Find out with MSN Money's calculator.)
4. Not taking full advantage of benefits
Leaving money on the table will hurt you later in life.
According to the independent investment adviser Financial Engines, the recession hurt participant savings rates, with 39% of participants not saving enough to get their full employer match, up from 33% in 2008. Of participants under age 40, 47% failed to save enough to get the full employer match.
In tight economic times, it is understandable that households need to cut costs in many ways. But every dollar not added to your portfolio will miss out on the matching company funds and compound interest that can accrue for years to come.
5. Not having a tax strategy
Many fail to consider the tax impact when withdrawing from their nest egg, Libbe says.
When in retirement, the objective changes from accumulation to converting investments into "tax-smart" income. A tax-efficient withdrawal plan can make a significant difference in how long your portfolio lasts. Retirees need to optimize taxable and tax-advantaged accounts to minimize tax-bracket impact, as well as other income such as Social Security.
"You can actually make your retirement assets last longer if you know how to take distributions from them in retirement so that you are efficient with your taxes," Libbe says. "It is not easy for the average consumer to do, but there are financial advisers and software programs who can do exactly that. They can make sure you don't bump up into a new tax bracket and you are paying attention to required minimum distributions. It can be as simple or complex as you want to make it."
Avoiding the pitfalls
The Transamerica Center for Retirement Studies recommends seven steps to help avoid these and other retirement mistakes that can have a lifelong impact:
- Get the conversation going with friends and family. Just 9% of workers frequently discuss saving, investing and planning for retirement with family and friends.
- Formulate a plan and write it down. Only 10% of workers have written out their retirement strategy.
- Get educated. The majority of workers (71%) say they don't know as much as they should about retirement investing.
- Consider retirement benefits as part of your total compensation. Fifty-three percent of workers would select a job offer with a higher than expected salary but poor retirement benefits over one with excellent retirement benefits and a comparatively low salary.
- If your employer offers a plan, participate. And if your employer doesn't offer a plan, ask for one. Just 71% of workers report being offered an employee-funded plan at work, while 92% say a plan is an important benefit. However, almost one-quarter of workers (22%) who are offered a plan at work do not participate.
- Make catch-up contributions. Just over half of workers (56%) are aware that people age 50 and older are allowed to make catch-up contributions to their retirement plan.
- Have a backup plan in the event you are unable to work before your planned retirement. Only 19% of workers have a backup plan.
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Some time ago we met with a financial planner and have done all the calculations. The end result of this work is what convinced us that we could afford to retire. Even though the "numbers" add up, there is always an element of guesswork involved. That's where things can fall apart quickly. Who knows what will happen? I don't. However, I think we have planned as much as one can. Now we just hope it all works out.
Fathis...you're right, I did not understand the 4% rule. Thanks, your comment prompted me to do some research. I found an article (MSN blocked posting the link) that speaks to abandoning the 4% rule because it's flawed, but goes on to state that we don't have anything better! Personally, I'd like to see some consistency in these articles I read. I've read artcles suggesting the need for anywhere from $1m to upwards of $5m in a retirement plan to be comfortable. I've played around with "retirement calculators" that all use different assumptions with results that vary by such a ridiculous amount, they're just a complete waste of time. Personally, my plan is to save...save until it hurts after my kids are done with college. Put the maximum that I can under the law in to my deferred comp plan which I've been doing for years. If that doesn't work, no article on retirement planning in the world is going to help me!
Well, I always have a good laugh when I read about people asking for advice from financial advisors.
What do these people really know? Nothing. Look at the mess these so called specialists and advisors
put us into. If they really know it all, why don't they sort the mess they put the whole world into. For me they are a joke!
the longer you put off Retirement to try and build up the nest egg, a more costly financial burden is building up all the while. That is your health. Keep neglecting your health and not exercising and eating diet right, you will have to shell it all out for health treatments. Retire now, or Retire later, it is your choice. I hope that you make the right one. Why not let go and put the young ones to work.
they are the majority who cant find work and need the money the most. thats the reason why so many young ones are out of work. The older ones keep on working and working and working, like the energizer bunny, and they dont know how to actually stop working. I honestly think that the majority of the older workers need ther
find other not taxable accts. they exsist. dicipline yourself to save early, do not leave your retirement in hands of gov. get a good consistant rate of return that has no risk. dont put all your savings in tax qualified plans have a seperate acct that also gets around 8% that will not penalize u for early withdrawl.
Give it up. The way the (R)'s are attacking SSI and Medicare no amount of planning will work. The first illness will ruin any average person's retirement.
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