10 Big Retirement Blunders

empty purse
Getty ImagesIf you use all the funds in your retirement accounts too early, you'll have to scrape by later in retirement.
By Maryalene LaPonsie

Today's 65-year-olds can expect to spend about 20 years in retirement should they quit their jobs right now. However, the Social Security Administration reports that one quarter of those who are age 65 today will reach age 90, and 10 percent will make it past age 95.

Those numbers add up to a lot of time spent living off retirement savings. If you want to be comfortable during those years, finance experts say you should avoid these 10 retirement blunders.

Blunder No. 1: Not having a plan for retirement money. Retirement planning experts say the biggest blunder workers make is simply not having a plan for their money in retirement.

Herb White, a certified financial planner and president of Life Certain Wealth Strategies in Denver, says workers need to create a cash flow scenario. That's a plan that looks at expected retirement income from investments, Social Security and pensions and ensures it will comfortably cover all living expenses

"Less than 30 percent of the people I've worked with in the last 18 years have had that [cash flow scenario]," White says.

Blunder No. 2: Forgetting about inflation when making a plan. Another mistake people make is forgetting that a dollar today isn't the same as a dollar 20 years from now. Inflation can erode purchasing power and needs to be calculated into a cash flow scenario or retirement plan. At the very least, retirees should make sure their investments are keeping up with the rate of inflation.

Blunder No. 3: Failing to save enough money for retirement. Of course, the best plan in the world can't compensate for a retirement account with scant money in it.

"A lot of people think they can't afford to save, but you can't afford not to save," says T. Michelle Jones, a certified financial planner and vice president at Bryn Mawr Trust. Jones says eliminating even seemingly small expenses, like eating out, can free up cash to set aside for retirement years.

Blunder No. 4: Raiding retirement accounts early. Don Chamberlin, president and CEO of The Chamberlin Group in St. Louis, Missouri, says dipping into retirement accounts early is another serious blunder people make.

While loans can be taken from 401(k) accounts and IRA money can be withdrawn early for certain needs, like educational expenses, doing so is a mistake. That money needs to stay in those accounts to accumulate compound interest, which has the potential to add tens of thousands of dollars or more to an account balance over the course of a career.

Blunder No. 5: Getting emotional about investments. Another retirement blunder is poor investment behavior.

"We live in a timing and selection culture," says Chuck Downs, co-founder and wealth management adviser with Arven Advisors in Miami. "People buy funds based on hot recent performance."

Then, when the market downturns, they panic and unload the stock. By jumping on hot stocks -- often when prices are highest -- and selling during low periods, investors seem to lock in low rates of return. Poor timing is likely one reason a 2014 study by financial research firm Dalbar found the average investor had only a 3.7 percent annual return over a 30-year period when the S&P 500 index was gaining 11.1 percent a year.

Blunder No. 6: Being too conservative in investments. Investor returns may also lag behind benchmarks like the S&P 500 because people are too conservative with their money.

"The old advice was to use age asset allocation, so if you were age 60, you'd have 60 percent of [your money] in fixed income accounts," Jones says. "People are living a lot longer so that rule doesn't apply."

Instead, even retired investors need enough growth in their funds to keep up with inflation and stretch money over what could potentially be a 30-year retirement.

Blunder No. 7: Missing an employer's 401(k) match. Financial Engines, an independent investment advisory firm in Sunnyvale, California, estimates American workers miss out on $24 billion a year in matching funds for their 401(k)s. This is money employers would be depositing in retirement accounts if only workers made their own contributions.
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