Smart SpendingSmart Spending

5 ways you are already wrecking your retirement

If you're doing any of these things, stop it. You'll be glad you did later.

By Jul 8, 2014 11:37AM
This post comes from AJ Smith at partner site on MSN MoneyLiving in a villa in rural Italy. Enjoying the beaches of Florida. Skydiving in the Swiss Alps. Absorbing the culture of major metropolises around the world. No matter what your dream for retirement is, it is never too early to start planning. Achieving a well-planned, financially sound retirement is about making the right choices along the way. Below are five common mistakes that can put your retirement goals at risk.

Couple looking at computer © Corbis1. Not saving early or often enough

While you may think there is plenty of time between your current life stage and retirement, it’s never too early to start saving. The longer you wait to start, the more money you will have to contribute per year to make up for time lost. Not only will you save more the earlier you begin, but it’s important to establish the financial habit to continue throughout their career.

2. Underestimating your needs and life expectancy

When planning for your retirement, it is important to be honest with yourself in deciding the lifestyle you want to have. Setting tangible goals and generously estimating your food, shelter, medical and other needs will ensure you will have the adequate funds for the future you want. This includes thinking about both what you will need and want, as well as for how long you will likely want and need it. It’s a good idea to consider average life expectancy and family history when determining these numbers. The last thing you need is to get into debt in retirement because you didn't plan correctly.

3. Ignoring tax breaks

The types of accounts used for investing from 401k's to IRAs affect how your funds will grow. These traditional plans enable your tax-deferred earnings to compound and often provide an immediate tax break on income each year you contribute. It is also advantageous to seek employers that will match your contributions; this is like achieving your goals with free money or extra salary.

4. Borrowing against your funds

While putting as much money as you can into your retirement fund is a great idea, this is separate from your emergency fund. Borrowing against your retirement or taking money out of your account earlier than planned can mean you have to pay taxes on the money, suffer an early withdrawal penalty and lose out on potential growth. Even if you plan to repay the money to your retirement account, the best policy is to keep your hands off the retirement funds until you are actually retired.

5. Investing aimlessly or foolishly

It is important to pay attention to your retirement plans and investment options. Being too aggressive or not adequately diversified can hurt your retirement funds, while being overly conservative can mean missing out on potential growth.

It’s a good idea to set goals, pay attention and save as early and often as possible to make your retirement dreams come true.

More from

Jul 9, 2014 9:47AM

The biggest mistake one can make is not to start retirement planning and saving/investing early in life, and to be consistent(save with every paycheck), take advantage of any employer matching plan, max out contributions when possible, eliminate debt, avoid risks with your nest egg and plan for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.).  I use several sites including Dividendchannel, Valueforum and the site Retirement And Good Living which provides information on finances, health, retirement locations, part time work and also has a great blog of guest posts about a variety of retirement topics. 

Jul 9, 2014 10:17AM
I saw this posted somewhere before and I think it really is some of the best savings advice I've ever seen posted. Most young people would benefit from it:

Here's the path to retire on your own terms, in 7 steps:

1)  Pay off your debts as fast as you possibly can.  If this means living in a crappy studio apartment and eating ramen everyday for a couple of years, do it.  If you want to buy a car, get a reliable beater. Get insurance for $25/month from Insurance Panda.  Forget about buying a house until your debts are paid off.

2) Once you are out of debt, stay out of debt. The only exception to this rule is a vehicle and a house. If you want to get a nicer car, buy used and be able to pay it off in a year or 2.

3)  If you are going to stay in the same spot for at least 10 years, buy a house, preferably with at least a little bit of usable land.  An acre is good, 5 acres is better.  Take the amount you are pre-approved for and cut it in half - that's how much you should spend on a house.  Come to the table with at least 20% down and make a couple of extra mortgage payments every year.  If you're going to be transferred or relocate every 5 years, forget about buying a house and rent instead.

4)  Develop multiple revenue streams.  Do contract work.  Start a business on the side.  Invest in a business as a silent partner.  Raise chickens, breed dogs or grow apples.  Build websites. Buy and sell antiques.  Acquire rental property.  Sell something that generates residual income.  Learn to play the currency markets or trade stocks.  Do whatever you can to generate income from multiple sources.

5)  Grow these multiple revenue streams to the point that they generate enough consistent and reliable cash flow to replace your current income.

6)  Make as much as you can.  Save as much as you can.  Give away as much as you can.

7)  Retire!- the sooner, the better.  Be sure you understand that "retirement" doesn't necessarily mean you stop working, it just means having the freedom to do what you want to do, when you want to do it.

Don't be foolish and fall into the trap of trying to measure your wealth by the value of your assets. Markets change.  Valuations fluctuate.  Instead, measure your wealth by the amount of cash flow your assets consistently generate.  
Jul 8, 2014 9:11PM
6. Setting a percentage and forgetting it...As you get raises, sure, take some for today, but increase your contribution percentage for later years. Next to outliving your savings, having to exit the work world and commence 'surprise retirement' can be about as scary.
Jul 9, 2014 1:03PM
If you have paid into Social Security, you are entitled to payment when you retire. You are not entitled to a raise every year or so for any reason. Social Security is meant to keep you out of poverty, not pay for every convenience life has to offer.
Jul 8, 2014 1:46PM
What was not mentioned in the article Is a Roth IRA, which beats the other IRA's hands down. While it is true, the amount you contribute to a Roth, is not deductible when you put the money into the account, the huge amount you can hopefully gain, with a Roth, are not taxable, when withdrawn, vs. a traditional IRA where all of the gains, when withdrawn, become taxable income.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.