| Wealth seems to be everyone's dream; the ability to | | | | is like taking out $35,000 in 35 years. If it would have |
| relax a little more, to not stress so much about | | | | been allowed to stay in the account and grow over |
| finances and to enjoy the "good life." So often it is | | | | 35 years, it would have accumulated to almost |
| believed that wealth is only attainable by those with | | | | $35,000. The other problem is that you will most |
| large incomes. Those with smaller incomes may not | | | | likely have to pay taxes and a 10% penalty on the |
| put anything aside, assuming such small savings won't | | | | money because it is being taken out before age 59 1 |
| make enough of a difference in the long run. In my | | | | 2. Now to get $5,000 after the taxes and penalty, |
| experience in the financial services industry, there | | | | you have to take out over $8,000, which would |
| were several times when I would help an elementary | | | | equal over $55,000 lost in 35 years.I'm Sure my |
| school teacher or janitor with their sizeable 403(b) | | | | Basket Can Hold All of ThisNot diversifying or putting |
| account. Obviously for them, small savings over time | | | | all your eggs in one basket is another financial blunder. |
| made a big difference. In the same category are | | | | I was a retirement specialist working with 401(k) and |
| those who have large incomes and assume they | | | | 403(b) account owners when the market crashed in |
| always will. They constantly spend to the top of their | | | | 1999 and 2000. How vividly I remember talking with |
| income level and set little or nothing aside for the | | | | people in their fifties and sixties who in February of |
| future. Yes, I also remember helping doctors or | | | | 2000 (right before the NASDAQ started falling) |
| attorneys take loans out of their 401(k) accounts. I | | | | wanted to put their entire retirement account into |
| found that it wasn't so much what you made but | | | | technology. I discussed with them the advantages of |
| everyday decisions that determined long-term | | | | diversification especially in such a volatile market. |
| success.When I once asked a janitor of an | | | | Some listened, but most didn't. The comment I |
| elementary school how he had accumulated his 1.7 | | | | remember the most is, "I don't have enough money |
| million dollar 403(b) he said, "I just started putting | | | | to retire so I need it to grow really fast." The result |
| money into it when I first came to work here, a little | | | | was buying in at an all time high and then either |
| bit each paycheck." Now, 40 years later as he | | | | jumping out along the way down or riding the market |
| approached retirement with a steady pension and a | | | | to the bottom. Those who stayed in for even a year |
| large 403(b) account he was financially wealthy. | | | | lost more than half of their retirement in a |
| Avoiding financial mistakes is the key for anyone to | | | | technology fund.Compare that to those who were |
| retire well. This article lists some of those mistakes | | | | diversified across several markets, domestic and |
| and ways to steer clear of them.Waiting Until You're | | | | international, and several types of investments, |
| 55Not starting to save soon enough is number one | | | | equity, fixed-income and short-term. Someone in their |
| on our list. Beginning early to save for retirement can | | | | fifties, planning on retiring in 10 years would be |
| make a huge difference in the long run. To illustrate | | | | diversifying if they had about 60% in stocks and the |
| this, let's assume we have two people saving for | | | | rest in bonds and money markets. This type of |
| retirement, we'll give them simple names that | | | | portfolio still lost money during that volatile time, but |
| correspond with the age they started saving, Mr. 25 | | | | not nearly as much as a technology fund did. Those |
| and Mr. 45. Mr. 25 puts $3,000 into an IRA each year | | | | with a diversified portfolio lost about 5-15% in that |
| until he retires at age 65. Assuming he gets an 8% | | | | same time period that the technology sector lost |
| growth rate on average, he amasses $839,343 or | | | | 50-65%. Trying to earn money for retirement by |
| almost a million dollars by age 65. If Mr. 45 were to | | | | putting all your eggs in one basket, especially when |
| put the same amount aside but start at age 45 | | | | you are close to retirement, is almost as risky as |
| instead of 25, he would only have $148,269 saved, | | | | using the slot machines in Las Vegas. If you are |
| definitely not enough to start retirement with. For Mr. | | | | behind in your savings, your best bet is to start |
| 45 to end up with the same amount as Mr. 25 he | | | | contributing the maximum allowed and push back |
| would have to save almost $17,000 per year until | | | | retirement for a few more years.Won't Uncle Sam |
| age 65. $17,000 per year for 20 years equals | | | | Take Care of Me?Relying solely on Social Security will |
| $340,000 cash out of pocket, whereas $3,000 per | | | | leave you with little income in retirement. In a |
| year for 40 years is only $120,000. Mr. 25 only had to | | | | message to the public issued by the Social Security |
| save about one third the amount Mr. 45 did all | | | | and Medicare Board of Trustees in 2005 they stated, |
| because he started early. Letting compounding do | | | | "We do not believe the currently projected long run |
| the work for you allows you more money for other | | | | growth rates of Social Security and Medicare are |
| things you want.1% Is Enough, Right?Putting aside | | | | sustainable under current financing." They went on to |
| too small a percentage of income is another mistake | | | | say that without major changes to Social Security, it |
| people make. It may be difficult when just starting | | | | will begin to fall short in 2017 and will only be able to |
| out and times are lean, but you will thank yourself in | | | | fund 74% of benefits by 2041. The suggested |
| the long run if you make this a priority. Going back to | | | | solution is to either increase taxes 15% or decrease |
| Mr. 25 again from above, if he would have only put | | | | benefits 13%, neither of which are good for |
| away $1,000 each year, his ending balance would | | | | retirement. To continue to live the same lifestyle that |
| have only been $279,781 in 40 years, again assuming | | | | you are accustomed to, saving for retirement is |
| the 8% growth rate. We know how much $3,000 | | | | essential.Another Trip to the Doctor?Not preparing |
| per year would have saved him, but what about | | | | for healthcare in retirement is something that we |
| $6,000 per year? He would have $1,678,686. Doubling | | | | have recently had to think about. There is a good |
| his savings doubles his end result.I'm a Millionaire!Not | | | | possibility of Medicare not being able to meet our |
| realizing just how much needs to be saved in order | | | | needs in the future or we may need our own health |
| to retire is our next mistake. While the 1.6 million in | | | | insurance to carry us until Medicare kicks in. Being |
| the above example may seem like a lot of money, it | | | | prepared to pay for premiums or medical expenses in |
| won't pay the bills in 40 years. Assuming prices go up | | | | retirement is becoming a necessity. A 2004 study |
| by 3% each year, 1.6 million will only have the buying | | | | found that an average retiree spent 22% of their |
| power of a half a million dollars in 40 years when Mr. | | | | income on healthcare costs. For someone on a |
| 25 wants to retire. Assuming Mr. 25 lives to the ripe | | | | $50,000 a year retirement income, this equates to |
| old age of 90, a 1.6 million dollar account will give him | | | | $11,000 per year. Take that over a 25 year |
| about $2,300 dollars of income each month in real | | | | retirement and you are up to $275,000 for healthcare |
| terms. This assumes that he earns 6% on his money | | | | costs alone. Long-term care such as nursing homes or |
| after he retires. Does it seem odd that our 1.6 million | | | | in home assistance is another cost that should be |
| dollars is now only worth $2,300 dollars per month? | | | | prepared for. With less and less employers covering |
| Inflation is the culprit. In actuality Mr. 25 will be getting | | | | healthcare in retirement, this is another area that is |
| about $9,800 dollars out of his account each month in | | | | often overlooked when planning for the |
| retirement, but because prices for everything will be | | | | future.Avoiding these financial mistakes will determine |
| so much higher in 40 years it will only be able to buy | | | | your quality of life in retirement. The next step is to |
| the same amount that $2,300 dollars buys today. | | | | get started. There are many brokerage firms that will |
| This is what "real terms" means. Mr. 25 will have to | | | | educate you about your options at no cost. They |
| determine if $2,300 per month will be enough to live | | | | can help you open a retirement account or determine |
| off of in retirement. Most likely it will not be enough | | | | if you are contributing enough to your current |
| unless he really likes ramen noodles.Do I Get a | | | | retirement account. The can also help you decide on |
| Checkbook with my 401(k)?Using Retirement | | | | what types of investments are appropriate given |
| Accounts as income before retirement is becoming a | | | | your age, timeframe and risk tolerance. The most |
| mistake that more and more people are making. This | | | | important thing to remember is that it is never too |
| is especially true for those who have employers | | | | late to start saving and even a little money set aside |
| contribute to their retirement accounts. While it is | | | | makes a big difference in the long run.Emma Snow is |
| tempting to assume this is just extra money you can | | | | a writer who specializes in financial planning. She has |
| spend, it has terrible long-term effects. Taking as little | | | | worked in the financial industry for over eight years. |
| as $5,000 out of your retirement account at age 30, | | | | |