TOP 12 RETIREMENT BLOOPERS
www.cnnfn.com/retirement Alexandra Twin; June 15, 2001
1) Making emotional decisions.
When you make emotional business and financial decisions it is easy to lose track of the true bottom line. (Example: A 62-year-old saves $250, 000 in retirement plan. He decides that it is enough to retire comfortably so quits his job.) By not calculating how much a year he would need to live and by forgetting about a $30,000 credit card debt, this employee will be in financial trouble within a few years.
2) Assuming your nest egg is big enough.
Remember you will need approximately 80% of your current income for living expenses in retirement. That is assuming you have no house payments, car payments or other large debts.
3) Cashing out your 401(k).
When leaving a job, the tendency is to cash out the 401(k). The temptation is then to spend this money that had been targeted for retirement.
4) Failing to consider tax implications.
If you cash out your 401(k), you face an automatic 20% federal tax withholding and, if you are younger than 59 ½, a 10% tax penalty. If your tax bracket is greater than 20%, you will owe the remainder of the tax on your next tax return. For an individual in a 30% tax bracket this will mean 40% in combined taxes and tax penalties if the money is withdrawn rather than rolled over to another plan or an IRA.
5) Confusing good debt with bad debt.
It may seem like a good idea to pay off your home with your retirement money, but by doing so you not only deplete your retirement money but you lose a debt that can be deducted.
6) Assuming that you won't live that long in retirement.
With today's technology and medical breakthroughs, we are living longer. You must plan for living expenses for 20 to 30 years past retirement.
7) Putting off retirement planning.
A new study shows that baby boomers spend about 1 hour a month on financial planning and 120 hours a month watching TV.
8) Investing only in what you know.
Diversification is key to building your retirement nest egg. For example, a telecom worker invested 90% of his $20,000 IRA into the telecom industry. Within 9 months, after the telecom sector dipped, it was worth approximately $5,000.
9) Waiting for Prince (or Princess) Charming, who never shows up.
These are the people who are counting on being supported by a future non-existent spouse or an inheritance and have taken no steps to plan for the future.
10) Assuming that you will get more from Social Security.
To find out your social security retirement age and receive statement showing your estimated retirement payments you may log onto www.ssa.gov or call 1-800-772-1213.
11) Being too prideful about part-time work.
Once you retire you might find out that extra income is necessary. A part time job could be necessary to supplement your retirement income.
12) Having no cash reserves for emergencies.
