Avoid the Retirement Planning No-Nos

Question of the week:I don't want to hit any bumps on the road to retirement. What are the most common mistakes people make when planning for their golden years? --Indy Gen Yer

Dear Indy,

Great question. To give you some perspective, we asked members of the Armchair Millionaire community about any regrets they have about how they've planned and saved for retirement. While many people were quite happy with how they've done so far, we did hear from a few people who wished they'd done things a bit differently. Here are two:

Max out that 401(k). "My company has always put an amount in a pension fund, but I just started contributing to my own 401(k) plan about five years ago. While I am grateful for the company contribution, I wish someone had told me in my younger years to put my own money away in a 401(k)." --Michelle

Start young and get an education. "I wish I started funding an IRA at age 20 or younger. And I wish I'd been offered a personal finance class back in high school." --Mike B.

My guide provides the top retirement planning mistakes I hear about and how you can avoid them.

The Armchair Millionaire Guide to Retirement Planning No-Nos

• Cashing out your 401(k). Far too many people changing jobs (more than 40 percent, according to a recent Hewitt Associates study) cash out their 401ks. There is no better way to torpedo your retirement years. This money is not a windfall--it's the core of your retirement income. Instead of cashing out your account, roll it over into an IRA or move it to your next employer's 401(k). Either way, keep that money in a tax-advantaged account.
• Investing too conservatively. Afraid that they could "lose" all their money if it's invested in the stock market, many people instead choose to put all their retirement money into CDs or money market funds. Trouble is, the return on these investments barely even keeps up with inflation, and is certainly not enough to grow your money the way you need. By choosing to avoid risk, these people actually risk not having enough to retire at all.
• Counting on Social Security. Too many people assume that their monthly Social Security check during retirement will take care of everything. But even if Social Security is still around when it comes time for you to retire (a bit doubtful in my mind), will it really provide enough? Probably not--the current average Social Security retirement benefit is just $903 per month for individuals and $1,492 for couples. That won't go very far towards funding a care-free retirement.
• Never starting. Some people, daunted by the sheer amount of money they will need to accumulate to secure their retirements, throw in the towel before they even start and give up on the idea of being able to retire at all. But the hardest part is actually just getting started. Small amounts invested regularly will grow into a healthy nest egg over time. Just $200 per month, for example, will grow to nearly $570,000 over 30 years when it achieves an average annual return of 10 percent a year.

THE BOTTOM LINE: A few mis-steps along the way can have a huge impact on your retirement years. But a sensible plan for saving and investing, along with a good dose of common sense, will keep you on the right track.

Comments

[Ronald Simmons]

to create a stream of income, will 5 positions in stocks,IE. XOM, JNJ, MO, PEP. WRE. THE GOAL IS TO NEVER SELL, just receive dividends. what do you think of a plan like this?