Do Not Jeopardize Your Retirement

If you have been working a long time, you may be looking forward to retirement in the not-so-distant future. Hopefully, you will be in good health at that time and able to pursue your favorite activities.

But the “golden years” may be tarnished if you are not careful. Here are five common mistakes that can hinder your ability to retire comfortably and securely.

1. You are overburdened with debt. Owing money is not necessarily fatal to a happy retirement. But credit card debt with high interest rates can be quite damaging if you cannot figure out a way to dig yourself out. It is especially difficult to set aside funds for retirement when you are facing large credit card bills each month. Make debt reduction a top priority.

2. You siphon off retirement savings for college expenses. If you are like many parents, you may try to pay off most, if not all, of the cost of your children’s college education. However, if you “rob Peter to pay Paul” by raiding your retirement accounts, you could be sacrificing your own retirement security. Generally, you will also have to pay a 10% penalty tax on top of the regular income tax on distributions from qualified retirement plans and IRAs made before age 59½. Distributions are taxed at ordinary income rates reaching as high as 35%.

Furthermore, you will be missing a chance to teach your kids about the value of savings. There are many ways to help finance the cost of college, but you cannot take out loans for retirement.

3. You have no “cushion.” Frequently, a household is almost entirely dependent on the compensation earned from a single employment source. If the main breadwinner loses his or her job, the family’s savings could be depleted, including any amounts that have been set aside for retirement. It makes sense to create an emergency fund that can tide you over until you are able to get back on your feet. You might consider a second job or a sideline business to protect against the worst-case scenario.

4. You do not have any long-term investment strategies.Retirement-savers may change their investment allocations in knee-jerk reactions to the financial news. Of course, there are no absolute guarantees, but it is generally advisable to develop plans for the long-term and to stick with them through some of the inevitable ups and downs.

Do not let emotion play a major role in investment decisions designed to produce income for retirement. But that is not to say you should maintain the status quo forever: Your plan should be adjusted periodically to take into account economic events, your time horizon, your tolerance for risk and your overall objectives.

5. You do not have any retirement plans. Probably the worst mistake you can make is to ignore the need to address a looming retirement. Naturally, you cannot foresee every contingency or blip on the screen, but having a plan in place will reduce the potential dangers you face.

With professional assistance, you should be able to approach the future with a greater sense of security. Gather all the information you will need to make intelligent decisions.