Six Ways to Avoid Common Retirement Planning PitfallsDespite the endless drumbeat of advice to "save, save, save for retirement," most Americans are saying "tomorrow, tomorrow, tomorrow." Then tomorrow turns into today, and more immediate priorities keep pushing long-term planning off into the future.

In the latest Employment Benefit Research Institute survey, 56 percent of workers reported that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, was less than $25,000, and about 29 percent said they have less than $1,000. Those numbers are hardly enough to fund even the most modest of retirement dreams.

Truth is, with savings so slim, there's precious little room for error when planning for retirement, because people's nest eggs aren't much of a safety net. But failing to save enough is just one of many mistakes people make when planning for the twilight years. There are a host of retirement planning missteps that can make an already less-than-ideal situation even worse.

Here's a look at where people commonly go wrong, and how they can adjust course to reach retirement in good financial shape.

1. Rethink Retirement

"The retirement message doesn't work. Most people don't have the willpower or the financial ability to forgo spending today for a hazy benefit tomorrow," says Sol Nasisi, chief economist at, which provides information on banks and credit unions. "Instead, people should think about building personal wealth, a process that it is ongoing and has immediate benefits, but also provides for people when they decide to stop working. Building and accumulating wealth is a much more powerful, immediate message than saving for retirement.

Changing the message changes how one thinks about saving and investing. "Building wealth is a much more active process than saving for retirement, and its benefits can be realized much quicker," Nasisi adds. While this may seem top be just a shift of semantics, "Building wealth is largely a matter of outlook and philosophy. Saving for retirement is a chore, building wealth is a challenge," he says.

Also, forget about the idea of retirement as a permanent vacation.

"The old idea of retire at 65, move somewhere warm, play golf, no longer works," points out Matthew Tuttle, a certified financial planner with Tuttle Wealth Management. "With life expectancies increasing, playing golf and going to early bird dinners every day can get old [after] 35 years. Rethink what retirement means: It could be working fewer hours or changing jobs to something you like more."

Know too, that you may not have as much control over your retirement date as you imagine. "Most people assume they will retire at a certain age, but two in five people retire earlier than planned," warns Katie Libbe, vice president of consumer insights at Allianz Life. "This could be due to layoffs, illness, or any number of factors. The key is to start saving early."

2. Anticipate the Unexpected

When you're young and healthy, you'll spend very little time in the doctor's office, but for most of us, that will change later in life. According to a Fidelity Investments study, a 65-year-old couple who retired in 2010 will need $250,000 to pay for medical expenses throughout retirement, not including nursing-home care. The study found that health care costs average $535 a month, or about one-fifth of an average couple's total monthly expenses of $2,842.

Failing to prepare for the reality that eventually, your young bones will be old is a critical mistake. "Medicare is not free and it doesn't cover everything, including prescription drugs," says Ross Blair, CEO of "Not planning ahead in retirement for catastrophic medical expenses as well as prescription drug costs and supplemental insurance plans could potentially be devastating to a retiree."

The good news is, there are some tax-free ways to compensate for those expenses. You can contribute to a Health Savings Account. Individuals can contribute $3,050 in 2011, while a family can contribute $6,150 a year tax free. If you're over 55, you can add an extra $1,000 as a catch-up contribution. "When someone turns 65 and ages into Medicare they can use these funds for prescription drugs, certain Medicare plans and other health coverage other than premiums for a Medicare supplement policy, such as Medigap," says Blair. Proper protection is key, be it health, disability, life, or long term care insurance.

3. Forget Tradition

Conventional wisdom may not apply to you. "Following standard industry advice that you should get real conservative, meaning investing heavily in bonds, by the time you are 65 is a recipe for having to find a job in your 70s and 80s when you run out of money," says Tuttle.

Likewise, you shouldn't count on history repeating itself. "You can't assume you'll always get the same return on your investments," cautions David Spader, a financial analyst with, which provides information on savings, money market and CD rates. "Don't think you'll be able to beat the market for 30 years."

4. Handle Your 401(k) Wisely

A 401(k) is not a piggy bank. Sure, it's your money, and good for you for participating in your employer's plan -- a surprising number of people don't even do that, believing that they can't afford to. Hopefully, you're contributing enough to get the maximum amount of free money from the company's match, if yours offers it. But borrowing from yourself is a bad idea.

"Taking a loan from a retirement plan can look appealing as a way to get out of a hole, but it can actually create more problems," says Scott Halliwell, a certified financial planner with USAA. "This tactic removes the growth potential on those funds, and, if you lose your job and can't repay the funds, the loan will be treated as a distribution and subject to taxes and penalties."

While it may be convenient, think twice about leaving retirement funds in an employer plan after you leave that job. "The employer plan has limited investment options. The employer makes all the decisions. As soon as possible, most people should roll their employer retirement funds into an IRA," advises Radon Stancil, a certified financial planner with Diversified Estate Services. You can do this tax-free and once the funds are in an IRA, you the owner, have all the control.
5. Redefine Investing

Investing has increasingly become synonymous with putting money in stocks, bonds or mutual funds. While this should be one facet of building wealth, it should not be the only investment vehicle, nor should it necessarily be the primary investment vehicle, says Nasisi. To be truly diversified, an investor should look to real estate, an investment in a business, or starting a side business, he adds.

"Take the initiative and invest some money in yourself and things you can control instead of forking over all your savings to others," says Nasisi. "Look for ways to build income streams that will generate reliable cash well into the future."

6. Set Priorities

You have to put your hard earned money in the right places. "Forget the shiny new BMW or the latest iPhone, save the money and put it to work for you," says Nasisi. While it's a very admirable goal to save money for your children's college education, truth is, there are many ways to pay for college. "But go into the bank on the day you retire and ask to take out a 'retirement loan," says Charlie Long, a financial adviser with Exemplar Financial Network. You get the point.

It can also be a mistake, especially in this low-interest-rate environment, says Long, to pay off a low-interest mortgage, when those funds could be used elsewhere.

Realize that when it comes to retirement you can't "wing it." Stephen Cunha, a certified financial planner with Baystate Financial Services says to remember the five P's: Prior Planning Prevents Poor Performance. You want a written plan that includes an analysis of all financial goals, retirement income needs, insurance, tax, investment and an estate plan, he adds. However, your plan can't be engraved in stone, and should be monitored periodically. You need some tangible evidence of what you want and why, and and idea of how you plan to achieve it -- otherwise, how can you expect to reach your goals?

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May 29 2011 at 12:17 AM Report abuse rate up rate down Reply

I can not understand one thing so please you can e mail me the ans, How can banks make billions of $ and they give nothing in return for ones money, like in savings and c d's ?

April 08 2011 at 4:04 PM Report abuse rate up rate down Reply

With the DOLLAR imploding, how can one retire? the once mighty Dollar is now like a third world currency.

April 08 2011 at 3:59 PM Report abuse +1 rate up rate down Reply


April 08 2011 at 1:38 PM Report abuse +1 rate up rate down Reply

My father thought he would inherit his fathers small fortune, my grandfather outlived his two sons. and his small fortune was eaten up by the nursing home, dying at 98. so, dont bet on inheriting. even one million is savings in not considered rich today, you still have to supplement your income. and working even part time is stay young,and make some spending money.

April 08 2011 at 12:31 PM Report abuse +1 rate up rate down Reply

If you want to be able to retire some day, you better educate yourself in personal finance. Unfortunately, this country doesn't teach much,if any of this, in school. This continues to be a MAJOR FLAW in our education system since they still manage to teach so much other useless nonesense. Most people are clueless when it comes to their own finances. First rule or personal finance is ..."pay yourself first." That means you absolutely must INVEST and save on a regular basis..and, START EARLY. Even if you think you can't afford it. Save SOMETHING!! Don't fall into a credit card trap and borrow or finance everything. You need to have an emergency fun. This usually means as a rule of thumb...3-6 months income in something safe thing like an interest paying bank account. Once you have saved a reasonable amount for emergencies you can then start to look to invest (i.e. put the money in something other than taxable and lousy interest paying bank accounts). You can then begin diversifying across a broad spectrum of assets, including mutual funds and electonicially traded funds or ETF's. Once you become more knowledgeable then you might perhaps consider individual stocks, bonds and commodities like gold, silver or oil. Social security, if its still around when some of you reach retirement age, was only meant to be one small piece of the retirement equation.If you are working and your company has a 401k or similar retirement savings plan, use it to it's maximum advantage. At a minimum put in the required amount to get the full company's matching investment. Not doing so, is nothing short of stupidity. If your employer doesn't offer any kind of retirement plan then you'll have to open your own IRAs...a simple thing to do. If your profession or your company still has something called a "defined benefit plan," like teachers, police and many government jobs, consider yourself lucky. Those plans are going the way of the dodo bird, especially in private industry. Most retirement savings will be left to the individual. So, start saving and investing early. You don't want to start playing catch up when your in your 50's and 60's. By then it's usually too late. You may think you have all the time in the world when your in your 20's and 30's to start saving..but, you'll come to realize that time goes by all too quickly and life is short. You don't want to end up like so many people in this country,... where you get to be retirement age, look around and scratch your head and realize you can't. It takes a lot of money to retire these days. And, unless you love your work, you may find you have no choice but to keep working. Many people who have worked hard all their lives did not start saving and investing early enough (or wisely enough) to prepare for retirement. Consequently, they find out too late they didn't save and invest enough. Unless they fell on extrodinarily hard times due to something unforeseen like incapacitation, loss of a job for a long extended period of time or illness, they mostly have themselves to blame for not preparing. Of course, our wonderful Gov't and the crooks on "Wall Street" haven't helped the investment community or the housing market in recent years. However, unless there is another revolution in this country, there isn't much we as individuals can do about that. We have to work with what we have. In the meantime, if you start saving and investing early, you'll be ahead of the game and surprised how fast tax deffered accumulations build up.

April 08 2011 at 10:37 AM Report abuse +3 rate up rate down Reply
1 reply to Artie's comment

WAY....Way ....Way too much for one posting.

April 08 2011 at 12:17 PM Report abuse -2 rate up rate down Reply

One of the surest ways to protect yourself in retirement planning is to buy and hold physical silver.

April 08 2011 at 10:06 AM Report abuse -1 rate up rate down Reply

I love when some east coast hack who has never lifted a broom in her life talks about how to prepare for retirement.

April 08 2011 at 8:44 AM Report abuse +2 rate up rate down Reply

If your a average worker paying morgage and bills then you better just do it the easy way, take 5 bucks a day or week and but it some where, or even a darn $1.00 a day and after 30 years thats your retirement money along with your SS check, it will add up and hope that those bucks are EVEN worth a buck when you retire. All these fancy retirement planes sold by these con artists to invest your money with high dreams of a million bucks is all a smake screan, just ask the salemen how much they will make off your money in that 30 years and you will see the real truth, just like all those 401ks, the only people that is making any money off them is the 401k plan sellers, not the average investors. Remember if millions retire our country is finished, and washington will not get PAID.

April 08 2011 at 1:40 AM Report abuse +2 rate up rate down Reply

one thing thats makes my point is those green and white papers the Goverment sends out that tells you that if you retire at this age you will recieve this much, look at it close, if you retire on SS on the money they will pay you you wouldn,t even be able to live in card board box on the street for that much, how far do you think $1,200.00 a month will get you in the year 2018 if you retire then, you would be lucky if you could afford canned dog food to eat, even that stuff is going up and up each year. Even if you get SS payment at $1,500.00 bucks a month who the hell could live on that and pay bills. Get with it people there is no retirement for the Average person unless you hit the lottery and even then they take 26% , the USA HAS BECOME A TOTAL SLAVE COUNTRY, and in the future you don,t have to be black to be that slave.

April 08 2011 at 1:26 AM Report abuse +4 rate up rate down Reply