Retirement Mistakes to Avoid

Six Retirement Mistakes to Avoid by Cindy Pearlman at CNBC.com summarizes six mistakes to avoid based on interviews with financial analysts. Here is the list:

1. Not utilizing tax advantaged savings options. Savers get tax breaks for using IRAs and 401Ks to save for retirement, including deductions for contributions and tax free earnings.



2. Not utilizing catch-up provisions for those 50 and older. For those at least 50, an extra $1000 can be contributed to an IRA and an extra $5,500 can be contributed to a 401K.



3. Withdrawing or borrowing from your retirement plan. The article notes that this money can never be replaced. In addition, taxes and penalties may need to be paid.



4. Underestimating how long you’re going to live. The U.S. average life expectancy is 77.9 years. Some financial planners are using life expectancies of 90 for men and 95 for women as an assumption for calculations.



5. Overestimating returns. The new rate is 6-7%.



6. Failing to make a retirement budget. People aren't realistic in estimating retirement living expenses, especially with respect to health care costs.

Overall, I thought this was a good list. In our case, we've been able to avoid making these mistakes. Based on our experience, I would add three other mistakes to avoid.

1. Not contributing up to the maximum 401K employer match. Whatever an employer matches is free extra money.



2. Not learning to live below one's means while working. While working we saved 20% of our income. As a result, we didn't need our full income to cover retirement living expenses which made the transition easier.



3. Having major debt. When retired, we only had mortgage debt. In our second year of retirement, we paid off the mortgage and significantly reduced our living expenses which enabled us to remain in retirement in spite of the decline of the stock market and the recession.

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This is not financial or retirement advice. Please consult a professional advisor.

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