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8 costly retirement planning mistakes

Most Americans worry that they won't have enough money for a comfortable retirement. But if you avoid some major missteps now, you're more likely to find yourself among the unworried later on.

By MSN Money Partner Jul 22, 2013 1:20PM

This post comes from Angela Colley at partner site Money Talks News.

MoneyTalksNews logoIn a recent survey, only 13% of respondents told the Employee Benefit Research Institute they’re very confident they’ll be able to afford a comfortable retirement. Meaning, 87% of respondents weren’t sure they’ll be able to continue their quality of life after leaving the workforce.

Those are scary numbers, but you can eliminate much of the worry by avoiding the common retirement planning mistakes people make. In the video below, Money Talks News founder Stacy Johnson explains how you can do that. Check it out, then read on for advice.

1. Failing to plan
In another section of the survey, only 23% of respondents told the Employee Benefit Research Institute they were very confident they’re doing a good job of financially preparing for retirement. Failing to plan is one of the biggest mistakes you can make. If you don’t have a plan, spend a weekend hashing one out. Here are some questions to ask yourself:

  • What do I want to do in retirement? Should I save for travel or hobbies?
  • How much will I need to cover my expenses?
  • How much do I have saved now?
  • What is my goal amount?
  • How much will I need to reach my goal?
  • How much should I put aside a month to get there?
2. Starting too late
I started saving for my retirement at 18 because my parents persuaded me to sign up for my company’s 401k plan. At the time, it was just a few bucks a month, but that seed money has had time to grow. If I’d started now, I would have missed out on 11 years of compound interest.

Bottom line: The sooner you start saving, the bigger your pot of money will be when you’re ready to quit work.

3. Not taking advantage of 401k’s
If your company offers a 401k plan and you’re not contributing, you’re making a huge mistake. Contributions to your 401k come out of your paycheck before taxes, meaning it’s a portion of your income that you won’t pay taxes on now. And many employers have a match program, meaning they’ll match your contributions up to a certain percentage, which is free money.

Talk to your human resources office about your company’s 401k plan and sign up ASAP.

4. Not understanding the risks
Stocks come with risks, but if that’s causing you to shy away from stocks entirely, you’re depriving your retirement account of an opportunity to grow. On the flip side, you could be taking on too much risk. If you have an aggressive retirement plan loaded with high-risk stocks, you might end up losing a big chunk right before you retire.

Stacy, in a post for beginning stock investors, offers this advice:

I suggest subtracting your age from 100, and putting no more than the resulting percentage of your long-term savings into stocks. So if you’re 25, 100 minus 25 equals 75 percent in stocks. If you’re 75, you’d only use stocks for 25 percent of your savings.

But as I also said, that’s just a rule of thumb. If you’re nervous, you’ve invested too much.
5. Relying on Social Security
If you’re relying on Social Security to keep you solvent in your golden years, you might be setting yourself up for disaster. Use the Social Security Administration’s Retirement Estimator to see an estimate of your Social Security benefits.

Couple seated on bench at ocean © Ivy Reynolds, Brand X Pictures, Getty ImagesOdds are, it won’t be enough. The maximum Social Security benefit this year for someone who retires at full retirement age is $2,533 per month and only $1,923 if you take early retirement at age 62.

6. Underestimating health care costs
If you assume your health care costs will be covered after you qualify for Medicare at age 65, you might be in for a rude awakening when you retire. Fidelity Investments says a couple retiring in 2013 will need $220,000 on average to cover health care costs in retirement. That’s not including nursing home or other types of long-term care.

Fidelity adds that “retirees now spend more on health care than they do on food.”

7. Borrowing from your future

You can borrow from your 401k, but that doesn’t mean you should. I worked for a company that actually encouraged people to borrow from their 401k’s to cover expenses like a new house or car. You will have to pay it back, but in the meantime your retirement funds won’t be growing as much as they otherwise would if you had left that money in the account.

8. Cashing out early

If you quit your job, you may be tempted to cash out your 401k, but do so and you’ll not only owe taxes on the amount but you’ll also face a 10% penalty. If you cash out your 401k before your retirement, you’ll have to pay taxes on any money you collect. Instead, roll your 401k into an individual retirement account and stay tax-free.

More from Money Talks News:

Jul 23, 2013 1:38PM
So wait, I shouldn't rely on Social Security, but I should keep voting for idiots who push us further and further into debt so people *can* rely on Social Security?
Jul 23, 2013 5:29PM
Sick and tired of overpaid no moral hollywood types.  Sick and tired of our veterans being cheated while the jerks in the white house are wasting all the money on lavish vacations they do not deserve.  They have no class, it is hard to listen to anything they have to say, it is always under the table lies.
Jul 24, 2013 9:22PM
Let's see...My life expectancy is 74 (male born in 1951).  Say I retire at 65.   I'm going to spend $220,000 on average in 9 years on health care?  Let's see...doesn't medicare pay 80% of the cost.  That would mean that in 9 years, I'm going to pay 20% with my $220,000 and Medicare is going to pay the other 80% which would be about $880,000.  That would be $1,100,000 in just 9 years for medical care which works out to be a little more than $122,000 a year.  Even if I was to live twice as long for 18 years,  their claim means I would still be paying over $60,000 a year in health care costs.  Why do I find that hard to believe? BS!! 

Jul 25, 2013 10:42AM
changing social security in 1983 and in 1996 so we have to wait longer and streched our benifits , you know the ones WE PAY FOR , I cannot trust the government or any thing they say or do.
Jul 24, 2013 9:31PM
Seriously - how many  people get full social security payments.
Jul 25, 2013 10:47AM
They forgot one.  Spending all your money on your adult kids who can't (or won't) find jobs to support themselves.
Jul 25, 2013 8:50AM
Never in the history of the human race has being old ever been a secure or comfortable time for 89% of the human race.
Jul 25, 2013 11:03AM
The retirement industry of Wall St. has spent millions on lobbyist and polititions to make certain that they get a share of your retirement savings. I f they could steal it all they would. A four letter word that begins with F and ends with K ...... 401K. 
Jul 25, 2013 2:10PM

Sorry people but when we retired 17 years ago there is NO WAY to estimate that our HEALTH CARE PREMIUMS for two of us would be close to $10,000 a year.  Of course if we hadn't worked all our life this would be provided.....pretty sick when you think of it.


What is really sickening is seeing our neighbors living high on the hog with so called "disability" payments and she claims she gets Medicare for free.

As I see it these "Disability recipient's" can do most anything except WORK.....and I'm sorry to say this more of the normal than exception in my area of the country.]


Jul 25, 2013 11:05AM
READ: "the Retirement Heist" by Ellen Schultz 
Jul 25, 2013 1:00PM
Many think 401K's are not safe and don't understand the full concept.... Take it from a man that went down that road and is now retired and living without worry on the money side. Learn about it and get started ASAP and put all you can back, you'll be glad you did.... if you are worried just put you money in a couple of growth and income funds and sit back and watch it grow. Better and more satisfying than watching a garden grow.
Jul 28, 2013 7:20PM

Spend less than you earn.  Live within your means.  Credit cards are a 30 day account.  Don't blame the government for being stupid.  Take responsibility for how you spent your earnings.  Be persistent in preparing for retirement.  Social Security might pay a few bills, it is not what you will need to live on.  Love your spouse, love your family, that is all you have. I am 70 and life is good.


Jul 25, 2013 3:19PM

Yes! I like this program it helps directs me to right decision makes on my retirement plan,

I still don't think of retires yet,as I have things to clears from payments of debts,then I'll do

my maths and do some researches first before I think of retires.

But this is a great program for me to follow up for the future savings,,,Thanks

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