3/23/2012 1:30 PM ET|
5 ways to blow your retirement
It's far from impossible to save enough for a comfortable retirement. But these blunders could come between you and your financial security.
A comfortable retirement is definitely achievable. Yet, many people face tremendous retirement challenges because they spend years neglecting simple measures that would make having enough money in their golden years a certainty.
Here are some common ways people blow their chances of having a comfortable retirement:
Not saving enough for a rainy day. Everyone needs to have an emergency fund. But while that's a good start, you need much more than just 12 months of expenses stashed somewhere safe. People get laid off, have their salaries decreased, or their businesses shut down because of changing business climates all the time. (Are you saving enough for retirement? Use MSN Money's calculator to find out.)
Assuming your current salary will continue. It might be overly optimistic to believe that if you save 5% of your paychecks every year for the next 30 years you'll have enough to retire comfortably. You might not be making the same level of income or get regular raises for three decades in a row. That's why you can't really be saving too much unless you've already hit your ultimate retirement goal.
Failing to factor in inflation. You might think you're playing it safe by putting your nest egg in a bank account that is FDIC-insured. But earning next to nothing in interest each year can be dangerous, because inflation will erode the purchasing power of your money. It's important to select some investments that are likely to keep up with inflation in retirement and maintain diversification in your portfolio.
Not looking far enough into the future. Some people get interested in stock investing while they are young, spending hours every day trying to pick a winning investment. But when you are young, your nest egg is small, so you should spend your time trying to maximize your earnings potential instead.
As your assets grow, it is prudent to start spending more time on your investments simply because there is more to lose. There is no shame in finding an investment adviser to help you manage your money, but you should still be very much involved. You are responsible for growing and protecting your own nest egg. (Use MSN Money's 401k calculator to see if yours is likely to provide enough.)
Allowing lifestyle inflation. It's easy to inflate your lifestyle as you earn more. Just one more night out, more frequent updates to your possessions and a few upgrades will exponentially increase your expenses.
Though there are a few ways to buy a bit of happiness, too many people make the mistake of thinking that spending more money will create lasting joy. In reality, it's having the ability to spend whenever you want that will truly make you happy. Learn to control your spending, and a comfortable retirement is really just a byproduct.
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