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Retirement Savings Mistakes to Avoid

10 Retirement Savings Pitfalls That Trap Savers at Any Age

We're thrilled to present this smart Bundle story here on Savvy!

Twentysomethings and even teens just starting out in the workforce may aspire to become young billionaires like Facebook co-founder Mark Zuckerberg and retire early. But any retiree could tell you it's not as easy as youd hope.

The real trick to a comfortable retirement is to get serious and start early, ideally before home ownership and kids take center stage.

Pitfall #1: Starting too late

Young people should start saving now. Even if you wait till your mid-30s, you might not have enough to retire at 65. The younger you start saving, the more time you have to watch your savings grow. And the earlier you want to retire, the earlier you should start investing for retirement.


Pitfall #2: Assuming you can choose your retirement age

Would you rather retire early or retire comfortably? is it really retirement if youre in your 60s, 70s or 80s and you spend half of your day working? The definition of the word retirement is changing, according to Barclays Wealth.

And theres no guarantee that youll be able to stay in the workforce as long as you want to. Americans in their 50s have been forced out of the job market during a struggling economy and others have been forced to compete for positions traditionally filled by young whipper snappers.

Pitfall #3: Not expecting to live that long

When youre young, it may not be pleasant to imagine yourself as a retiree, but thats something youll have to do if you want to take an accurate look of your long-term financial picture and decide how much youll need to afford the kind of retirement you want.

The average life expectancy is about 78 years old, according to the Centers for Disease Control and Prevention. But keep in mind that a man who's 60 years old right now has a 20 percent chance of living to 95 and a 60 year old woman has a 30 percent chance, Wachovia advises.

Read on for more retirement traps.

Pitfall #4: Using your retirement account like a savings account

Whether you're just starting to saveor your a decade or more away from retirement, remember that your 401(k), IRA or other retirement savings account isnt just a pool of money that you can just dip into for casual spending.

If you do, youre reducing the principal amount youve saved and taken away from the potential growth that could have come from compounded interest. You should have an emergency fundand save for fun stufflike gifts and traveling separately.

Pitfall #5: Forgetting about taxes

When saving for retirement, be sure to remember that a portion of what you plan to live on will have to go toward paying taxes. If youre retired and withdrawing money from your 401(k), for instance, those disbursements are considered taxable income, AARPreminds seniors.

Pitfall #6: Not accounting for inflation

"The greatest risk retirees face is inflation," says Tom Orecchio, national chair of the National Association of Personal Financial Advisors tells That may sound dramatic, but $800,000 in todays money could actually be close to $1.5 million in 20 years when you factor in an annual rate of inflation of about 3 percent.

So dont forget that the specific savings goal you come up with in 2011 will be drastically different when retirement nears.

Pitfall #7: Retiring with debt

Just because you have debt doesnt mean you cant retire. In fact, lots of Americans officially retire without any retirement savings at all, USA Todayreportedlast fall. But it doesnt mean you should.

Mortgages, credit card debt, car loans and medical debt can pile up and the bankruptcy rate among older Americans is rising, AARPsays. If youve still got time before your golden years, check out nine steps to a debt-free retirement, courtesy of the Consumer Credit Counseling Service of South Texas, a member of the National Foundation for Credit Counseling.

Pitfall #8: Being too aggressively invested

Generally, the closer you are to retirement, the less aggressively you should be invested. But nearing 2008, more than two in five investors between 56 and 65 had more than 70 percent of their investments in stocks, according to the Employee Benefit Research Institute.

Thats risky, especially based on an old, and perhaps more risk averse, rule of thumb that says the percentage of your assets you invest in stocks should be 100 minus your age.

Pitfall #9: Underestimating health care costs

The average 65-year-old American spends nearly three times what a 35-year-old would on health care, according to Bundle dataand more than double what a 35-year-old pays for insurance. Medicare may cover routine exams and medical supplies, but it doesnt cover everything. Retirees are especially hit by the high cost of prescription drugs.

Pitfall #10: Still overspending in retirement

Many Americans havent been saving enough for retirement, so clearly officially retiring doesnt give you the OK to go on a shopping spree. In fact, you probably shouldnt even take it as a reason to spend that much more freely at all.

Consider moving to a smaller home to save energy, and home maintenance costsfor instance. And avoid the temptation to keep up with the Joneses -- even though you find yourself with much more time to.

Check out these smart tips from Bundle:

Where is the Most Expensive Place to Have a Baby?

How Much Will You Dish Out During Retirement

10 Places With Great Employee Discounts

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