Planning for retirement can be overwhelming and fraught with mistakes.
The United States Department of Labor reported
that less than half of Americans have figured out what they will need for retirement. As much as 30 percent of people who have the opportunity to get the tax benefits of an employer sponsored plan do not choose to participate.
Here are six of the biggest retirement planning mistakes people make:
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1. Not Saving Early Enough
The magic of compounded interest works best for the very young. A person who starts saving $3,000 a year at age 25 for 10 years and then stops saving completely will have nearly $472,000 at retirement, CNN Money reported
. However, a person who started saving at age 35 the same $3,000 a year for the next 30 years would only end up with $367,000 at retirement.
2. Taking Money Out Early
The IRS takes an extra 10 percent
of your retirement money if you start taking it before you are 59 ½. Any money that was invested as a pre-tax dollar taken early also faces normal taxes as income.
3. Not Preparing for a Possible Market Decline
People nearing retirement should be particularly careful about protecting their portfolio against a possible market decline, said U.S. News & World Report contributor Kelley Campbell
. It is not as big of a danger for people who still have 20 or 30 years until retirement. However, a downturn near the time when you were planning to start pulling that money for expenses could be particularly painful. Campbell recommended a diversified portfolio of investments.
4. Heading Toward Retirement Without a Plan
It is important to not just save for retirement, but also consider how much money you will actually need when it comes. Many people either plan too high or too low, said Forbes Investing contributor Barry Glassman
. To find a realistic figure, start by considering about 80 percent of your current income.
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5. Not Considering Medical Expenses
The rising cost of health care is an important cost factor in retirement. Glassman explained that long-term care can be an overwhelming cost that drains retirement funds. Long-term care insurance is one possible solution.
6. Buying Into Investment Schemes
People often make the mistake of being lured in by promises of high returns on “sure thing” investments, Money said
. Taking pensions as a lump sum to get better returns with investments may not return as high as the penalties and investment fees that will be due.
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