10 Ways to Screw Up Your Retirement

The mechanics behind savings for your retirement are pretty simple. Start early. Save as much as you can. And use the best tools available to you. But there are some things that could trip you up and leave you with a less than ideal balance in your accounts. Here’s some things to avoid.

1. Saving too little

There’s no way around it, if you want a nice, comfortable retirement, you’re going to have to save a lot of money. How much? Typically around 20 times your current annual salary is what you need if you plan on retiring at the age of 67. If you’re just starting, to get to that point, you’ll likely have to save around 10% of your income in your 20s, 20% in your 30s, 30% in your 40s, and up to 50% if you’re in your 50s.

2. Borrowing from your 401K

Your 401K is made for your retirement and nothing else. There are extreme circumstances where a 401K loan makes sense. But the vast majority of savers should never make this move. It could mean missed contributions and missed gains. It also might mean a loan that’s due immediately when you get laid off. If you can’t pay it, you’ll face taxes and penalties.

3. Cashing out too early

Whether it’s a job change or some other need, there are times when you might be tempted to cash out your retirement too early. Avoid this move as it most certainly means taxes and penalties will need to be paid (if a 401K or IRA). And it certainly means you’ll miss out on the future growth of that money.

4. Using the wrong accounts

When it comes to your retirement savings, most people should be in some form of tax-advantaged account, like a 401K or an IRA. Taxable investing in a brokerage account has it’s place. So do savings accounts and CDs. But they aren’t great for long-term retirement growth. Plus, with tax-advantaged accounts, you can lock-in guaranteed tax savings.

5. Investing too much in one asset class or investment

You can invest in several asset classes within your retirement accounts: cash, bonds, stocks, commodities, real-estate. All have their pros and cons. Be sure you have a good mix of all the asset classes that will give you the appropriate asset allocation that lines up with your risk tolerance and age. In addition to asset class, you want to avoid piling too much into one particular investment. Common culprits are company stock options and real-estate investments.

6. Incurring too many fees

While you can’t control the gains you see in your retirement investments, you can control how much in expense you pay to own investments. All things being equal, you should shoot for the funds with lower fees. Compare expense ratios and load fees.

7. Depending on others too much

Social security might not be around in it’s current form by the time you retire. Cost of living increases have already ceased, and the projections show that full benefits won’t be payable in a couple of decades. Social security should be see as icing on the cake for most of us. At best, you should only count on social security helping you with about 30% of your retirement income needs.

8. Giving you savings to your kids for college

Your kids can get loans, scholarships, and grants for retirement. You can’t. Take care of your own retirement first. Let your kids pay for their own schooling with a job, grants and scholarships, or a loan. In my opinion, a subsidized student loan isn’t that bad of a deal anyway.

9. Spending too much in retirement

Plan on withdrawing around 4% of your retirement nest egg when you decide to retire. Most financial planners say that will be enough to get you by for 25+ years.

10. Not being insured

To make it to retirement with your funds intact, make sure you keep yourself and your family adequately insured (life, auto, home, health, etc.). This way, when the unexpected happens, you won’t need to raid your retirement funds to cover it.

This is a guest post from PT, author of 52 Ways to Make Extra Money, and owner of PT Money: Personal Finance. PT encourages you to keep your taxable investing costs down by checking out his list of the best online stock brokers for cheap stock trading.