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3 ways to retire poor

Here are the three biggest mistakes you can make when thinking about your financial future. Don't say we didn't warn you.

By Smart Spending Editor Jul 16, 2013 5:31PM
This post is from MSN Money contributor Liz Weston.

Image: Worried Woman (© Thinkstock Images/Jupiterimages)I hear from a lot of people who think they’re doing the right things with their money -- little realizing that they’re impoverishing their future selves. Three behaviors you’re most likely to regret later:

1. Putting off saving for retirement
Some people spend every dime they make, while others delay saving while they pursue other goals that seem more worthy, like saving for a home or paying off debt. The reality is that retirement savings opportunities are “use it or lose it” -- you can’t get back the company matches, tax breaks or (most important) the power of compounding if you don’t get those contributions into your account. Compounding is so powerful, in fact, that it gets harder and harder to catch up the older you get ... until it gets impossible.

The smarter solution: Start saving for retirement from your first job, and don’t stop.

2. Cashing out your retirement when you leave a job
The next most widespread and destructive behavior is tapping into what you do manage to save. About 42% of those who lost their jobs in 2010 cashed out their retirement plans, which is about the same percentage as before the recession, according to an Aon report. More than half of those in their 20s cashed out. Not only do you incur taxes and penalties that eat up 25% or more of your withdrawal, but you lose all the future tax-deferred compounding on that money -- which means those in their 20s are hurt even more by cash-outs than those who do it later. (Figure every $1,000 you withdraw in your 20s will cost you $20,000 or more in lost future retirement income.)

The smarter solution: Leave your retirement money for retirement. If you can’t or don’t want to leave your balance when you leave your job, roll it into your new employer’s plan or into an IRA.

3. Grabbing your Social Security benefit early
Social Security will be a big part of most people’s retirements, but too few people understand how much they’re hurting themselves -- or their loved ones -- when they apply early and lock in a permanently reduced check. It’s not just that you’re likely to live past the “break-even point” when, mathematically, waiting until full retirement age pays off in terms of total benefits.

More importantly, you may be cutting yourself off from strategies that would maximize your lifetime benefits and leaving your surviving spouse with a bigger check. Take a minute to read AARP’s excellent primer on the subject, “How to Maximize Your Social Security Benefits,” and use the free calculator at T. Rowe Price to help you understand the impact of different strategies. (If you want more freedom to customize a tool, gives you that for $40.)

Smart Spending on the go: Get our app for Android or iPhone

The smarter solution:
View Social Security as a kind of longevity insurance that helps protect you against the possibility of outliving your savings.

More from Liz Weston on MSN Money:
Jul 17, 2013 7:55AM

Wal-Mart really should revise it's hourly wage us worker bee's are barely surviving,I believe in charity but it also should begin at home. They could drop 20% and give it to us Think of the savings - Food Stamps,Welfare,etc.


Jul 17, 2013 4:26AM
1. LOW wages and cost of living = No money left over to save.

2. Loss of job and unemployment too low for cost of living needs = Cash in savings to delay loss of home.

3. Lower wage jobs also tend to be physical labor intensive; harder on body = Physical ailments happen earlier in life, preventing continuation of employment, less years for "retirement", and cause early retirement before death.
Jul 17, 2013 11:58AM
walmart won't do that , this way it keeps you dependent and they don't pay ANY benefits! And you and your family better hope you never get hurt working there : Walmart fights you on how, where, when u got injured and even if "THEIR" company Dr.s say it was work related Walmart cuts you off and refuses to pay for your pain meds/meds even prescribed by the company Dr. and their "policy" is to have you sue them for any bills . By that time you have either used your spouse's Insurance/ medicaid etc and by the time the suit comes around they agree to pay whats left which is MINIMAL/PENNIES!

Jul 27, 2013 3:04AM
I work for walmart and I make 7.80 an hour which is the lowest I have made since I was a kid, I took the job because I really was desperate for a job but I think its a ridiculous wage, McDonalds pays more for gods sake!! I had to take on a second job and they are throwing a fit about it! They won't work with me on my hours, telling me if I change my availability that I won't get any hours which is crazy because they are short handed on all shifts. My grandmother passed away and they didn't even want to give me the day off to go to her funeral and my mom ended up in the hospital 3 days later with lung failure and almost died and they were going to write me up cause I was 3 minutes late for my shift after spending all night at the hospital, and on top of it I have a 15 year old autistic and deaf brother and 17 year old sister I have to worry about! They have no compassion what so ever, the only thing that got me through the day was my trainer who let me check on her and them often throughout my shift. They say there all about there associates and customers but the only thing they care about are there pocket books. I can't even get off for my Dr. appointments. Would love to tell them Good Bye but need the income desperately cause I'm so behind from losing my job. Tired and stressed at the age of 30 been working since I was 12, not to mention worked the farm life well before that, but what's a person to do!!
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