9 dumbest retirement moves
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People live longer these days -- but unfortunately
for many, their money won't go the distance.
Richard Suzman, director for the Behavioral and
Social Research Program at the National Institute on Aging, or NIA, says
that although life expectancy gains have slowed over the past few
years, he believes we're in for another upturn.
"If that happens, more people will be outliving their
resources," Suzman predicts.
Do it right: Calculate
future expenses with an eye on both inflation and increased longevity.
This means allocating a portion of your nest egg to
higher risk, higher return investments such as equity mutual funds
or purchasing an immediate annuity with an inflation adjustment
component.
Raid your 401(k) or cash it out when you change jobs
Not everyone is lucky enough to have his or her own personal loan company, but with a 401(k), you can borrow your own money and, even better, pull it all out if you change jobs. What a cool way to pay off your credit cards or buy that boat you've always wanted. Not.
Getting your hands on a boatload of cash might seem
tempting, but Bonnie Fawcett, director of 401(k) programs at PNC
Financial Services Group, says going into your retirement savings
before you retire should be a plan of last resort.
Do it right: Dip into your 401(k) only when there is no other choice and the reason is an especially good one -- like moving out of a rental and purchasing your first home.
Count on Social Security
You don't want any regrets when you look back at your life, so you've
made a habit of living for the moment. Now the moment when you want
to retire is nigh, and you plan to let the government take care
of you. Way to go -- that's the kind of thinking that could land
you below the poverty line in retirement.
Social Security has helped lower cases of poverty
among the elderly in this country, but it stands on unstable financial
ground. "It's never too late to start saving and investing for retirement,
but you have to get intense and do what it takes to win. If you
aren't willing to sacrifice you won't get anywhere," financial expert
Ramsey says.
Do it right: Diversify your sources of retirement income as early in the game as possible. That means save in as many different types of tax-favorable investment vehicles as you can manage -- such as a 401(k) plan and an IRA. And save as much as you can.
Believe your retirement benefits won't ever change
Just because you were promised something doesn't mean it will come
true. Don't believe it? Ask the employees at General Motors Corp.,
IBM, Alcoa, Sears, Circuit City, Hewlett-Packard, Lockheed Martin
Corp., Motorola -- the list goes on and on. These companies have
frozen their pension plans -- which means future benefits stop building
up for some or all of their employees. Other companies have terminated
their pension plans or converted them to "cash-balance plans," which
are calculated differently -- to the disadvantage of older workers.
Even the government is chipping away at pledged benefits.
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