Small blunders contribute to retirement catastrophes

NORTH PALM BEACH, Fla. (10/15/07)--How many ways can you ruin your retirement? Bankrate reporter Carole Moore compiled nine of them, based on interviews with financial experts across the U.S. (Bankrate.com Oct. 9).

Here are some no-no's when it comes to preparing for your later years:

• Neglect to include inflation in your retirement estimates. Something that costs $10,000 in 2008 will cost $22,628 in 2038, assuming an inflation rate of 2.2% that rises to 3% starting in 2017. And don't forget something else: longer life expectancies. It's likely more people will outlive their resources unless they boost their savings now.
• Buy more house than you can afford. With all costs of home ownership on the rise--property taxes, insurance premiums, and upkeep--you can't afford a fancy estate. Strive to be mortgage-free before you retire, and consider moving so a sizable chunk of your retirement income isn't directed to housing expenses.
• Dip into—or cash in—your 401(k). Cashing in your 401(k) when you leave a job is tempting, but it should be a last resort. Find other ways to pay off credit card debt or other bills.
• Count on a pension. Employees of Lockheed Martin Corp., General Motors Corp., IBM, and others can attest to the fact that promised pensions can go away. These companies--representing the tip of the iceberg--have frozen their pension plans and ceased developing future benefits for some or all of their employees. However, the 2007 Retirement Confidence Survey conducted by the Employee Benefit Research Institute revealed that among workers who have personally experienced reductions in the retirement benefits offered by their employer, nearly two out of five admit they have done nothing in response to these reductions (EBRI News April 11). Set up plan B and set aside your own funds for retirement.
• Count on your spouse or partner's income to always be there. Death and divorce change everything, particularly for those who assume someone else will take care of them.
• Rely on Social Security. There are no guarantees, particularly as the first wave of 3.2 million baby boomers turns 62 next year at the rate of 365 an hour, with 49% of men and 53% of women projected to choose early retirement (USA Today Oct. 8). The strain on the Social Security system is good reason for diversifying your retirement income sources with tax-favored investment vehicles such as 401(k)s and IRAs.
• Save for kids' college at the expense of your retirement. If you do this, you may be working until you die. Instead of letting your kids' college fund have the advantage over your retirement fund, pay yourself first. Consider loans, grants, scholarships, and part-time jobs to get Junior through college.
• Count on good health. You may be in great shape or perfect health now, but aging often brings declining health—even if you eat old-fashioned oatmeal with ground flaxseed and raisins every morning. And don't count on Medicare covering everything: Retirees often are underinsured for the expenses they'll encounter.
• Plan to work indefinitely. Be careful: Some professions have mandatory retirement ages, and age discrimination is alive and well. And don't forget that disability, disease, and other aging conditions may cut your career short.

For more information, read "401(k) Rollovers at Retirement" in Home & Family Finance Resource Center.

courtesy of cuna.org