5 Retirement Savings Goofs

I'm saving pennies for vacations, fun, education and retirement. With those goals in mind, I read the following release from Alan Haft, a financial planner, with interest. Here is the text:
5 Major Retirement Mistakes

"The biggest surprise many Baby Boomers and retirees encounter is the realization that their ‘bulletproof’ retirement savings plan is riddled with bullet holes. Living longer, ironically, often means outliving nest-eggs intended to ensure financial comfort.

Haft explains the 5 biggest mistakes people make when planning for retirement:

· Thinking it’s too late to start planning.

Once you reach your 50s or 60s, it may seem too late to start investing. But thanks to the power of compounding, boosted by the tax-deferred growth offered by individual retirement account (IRAs), 401(k) plans, and annuities, it may not take as much as you think to build up a nest egg.

· Underestimating your life expectancy.

Almost 20% of workers expect their retirement to last 10 years or less, while an additional 15% expect their retirement to last 11 to 19 years.

But according to the 2000 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), half of the men reaching age 65 have an additional life expectancy of approximately 17 years, while half of the women reaching age 65 have an additional life expectancy of approximately 21 years.

Naturally, understanding how long you will likely live is paramount when it comes to planning


· Miscalculating your savings needs.

Most financial planners will tell you to plan on needing 60% to 85% of your pre-retirement income in your retirement years. But can you really predict how much you’ll need based on general percentages?

According to the EBRI survey, only 53% of workers have tried to determine how much money they’ll need to save by the time they retire. But half of the workers who did try to estimate their retirement needs increased their investments or changed their asset allocation as a result of their calculations.

That suggests that many people may not be correctly estimating their retirement needs. But thanks to software and online calculators, it’s easy to do so. Quicken offers one, as do many mutual fund companies.

· Not taking inflation into account.

Many investors, particularly older ones, are uncomfortable with market volatility. As a result, they invest solely in Treasury bills, fixed-rate CDs, and savings accounts.

Doing this could potentially eat away at most of their investment return, as these vehicles tend to return close to or less than inflation. As you approach retirement — and even in retirement — it’s important to consider keeping some money in growth investments such as stocks and stock mutual funds.

· Putting other financial goals first.

Retirement probably isn’t your only financial goal. You may also be saving for your children’s or grandchildren’s college education or saving for the down payment on a second home, for example. These are all important, but don’t place them ahead of a financially secure retirement.

Alan Haft is president of 5th Avenue Financial based in Boca Raton, Fl. He is a Certified Income Planner, Certified Senior Advisor with clients nationwide."