How to Blow It

Richard Quinn

THERE’S AN ABUNDANCE of advice on how to plan for retirement. Oh, it’s good advice. But it’s also a bit complicated, often requires discipline and always necessitates actually doing something.

And let’s face it: Who needs advice? Who wants to actually do something? Here are 20 ways to ignore the experts—and wreck your chances of a financially comfortable retirement:

1. Keep thinking retirement is so far in the future that there’s no need to act now. There’s still plenty of time. After all, you’re only [insert age].

2. Avoid saving when you’re young and instead play catchup starting at age 50. At that juncture, the government allows you to save more in both employer plans and IRAs, so that must mean it’s okay to wait.

3. Bank on being able to work until age 75 or beyond.

4. Live for today, so you accumulate debt right up until the day you hope to retire.

5. Invest in individual stocks you pick personally. Almost as good: If offered a retirement plan at work, close your eyes and pick the three options that sound best.

6. Ignore all the retirement planning tools available to you. They’re just too time consuming.

7. Never contribute to your 401(k), because right now there are so many better uses for the cash. Can’t resist the savings urge? Make sure you contribute at a level where you don’t earn the full employer match.

8. Keep the same mix of investments at age 60 that you had at age 25. Change is not good.

9. Take your Social Security at age 62, needed or not. It’s your money. Grab it while you can.

10. Only save in tax-deductible accounts and don’t bother with the Roth, let alone taxable accounts. That way, you can spend your retirement paying ordinary income tax on all your investment gains.

11. Ignore the need to provide for survivors. Don’t designate beneficiaries for your 401(k) or IRA. Don’t bother with life insurance. Got a pension? Talk your spouse into agreeing to a single life annuity benefit. After all, it’s your pension, right?

12. Make sure all your savings are in tax-favored plans, so they aren’t easily accessible in an emergency. What about the income taxes and potential tax penalties? You worry too much.

13. Assume there will be a major drop in your spending when you retire. Make a list of all your expenses, just to be sure. Are things looking a little tight? For goodness sake, don’t tell your spouse.

14. Cancel that long-term-care policy you bought years ago. If you haven’t needed it so far, you likely never will—and, besides, you have plans for that premium refund.

15. You’ve been waiting so long to buy that boat or RV. You deserve it. And what do you know? It’s so easy to get a 401(k) loan.

16. Invest heavily in your employer’s stock. There’s no doubt it’s a good company—and not at all like Enron.

17. Don’t worry about inflation after you retire. It’s been low for years and no doubt it’ll stay that way.

18. When someone tries to explain the power of compounding, don’t bother listening to all that gobbledygook.

19. When there’s a big drop in the stock market, make sure you shift into bonds. There’s no point sitting around and losing everything.

20. Still got money left for retirement? Tell your adult kids you’re always willing to help them out financially.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Don’t Call Me ThatHappily Ever After and The Office. Follow Dick on Twitter @QuinnsComments.

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Mik Barbasol
Mik Barbasol
4 years ago

Excellent article !!

Doug K
Doug K
4 years ago

the ‘power of compounding’ only works if the market is yielding positive returns after inflation and investment costs. There’s no reason to believe this will continue. “past performance is no guarantee of future results”, as every mutual fund will tell you. So I rather disbelieve in the power of compounding, which only works in an abstract mathematical sense. It hasn’t worked for me yet, over the twenty-five years I’ve been saving in the USA.

The S. African stock market had negative return over fifteen years, while inflation ran in double digits and the currency devalued. This utterly wiped out ten years of retirement savings.. I should have bought the sports car instead. With reasonable maintenance it would still have been worth a couple of thousand.

Since arriving in the US we have been assiduously saving 20% of income for retirement, but it’s not going to be enough. There’s very little an individual can do to assure a financially comfortable retirement. That depends utterly on external factors, such as the stability of government and the state of the markets. I do the opposite of all these twenty items, but it’s more in the nature of a religious ritual, a sort of cargo cult of retirement – I don’t have any faith in it anymore.

Old farmers’ joke: how do you retire from farming with a million dollars ?
A: you start with two million.
Same thing applies to the power of compounding – it doesn’t help until the pile of money is already large. Compounding my few thousands gives another few hundreds only. The compound interest on Pres. Bush’s fortune, even if invested in US treasury bonds, is enough to give him a comfortable retirement.

3 years ago
Reply to  Doug K

It sounds like you have had some awful luck. Hopefully other readers can learn from your experience. Respectfully, from the information you provided it seems like the error was at least partially your own. Your portfolio suffered from a bad case of home country bias.
Investors have a tendency to overallocate to there place of residence. The trend is prevalent across the world. By investing 100% of your assets in a place that controls .04% of the worlds GDP, you were exposed to excess geopolitical and regional risk. South Africa is still considered an emerging Market. Investments in these countries can be highly volatile. Nothing is guaranteed. The Japanese market is still recovering from the bubble of the early 90s.
A well designed portfolio should be globally allocated. Try purchasing a globally diversified basket of index funds. Dollar cost average into the portfolio as you earn to reduce timing risk.
It sounds like you are in the pre retirement phase. Compounding takes around 30 year to really work. This means you are probably going to have to adjust your expectations for retirement. I would suggest working with a local CFP to develop a plan. Find someone who is willing to listen and will work for an hourly rate.
Warm regards

Langston Holland
Langston Holland
4 years ago
Reply to  Doug K

Hi Doug:

Just for sake of interest, I ran some numbers on an investment in an S&P 500 index fund that accounts for annual expenses and assumes reinvestment of dividends and capital gains distributions. I also assumed 25 years of monthly investments of $833.33 USD beginning Feb 1994 and ending Feb 2019. This of course is $10,000 USD per year in a method referred to as monthly dollar cost averaging. A final assumption I made is that all taxes were paid from another source, not out of the portfolio itself since this is how many people do it. Of course, if this investment was in a Roth IRA there never would be any taxes.

I did the simulation here. Click on that link and run your own sims if you’d like.

The bottom line is that over this particular 25 year period you would have earned a compounded annual rate of return of 8.3% and had an ending portfolio value of $793,621.72 on your $250,000 investment. Even if you had chosen to pay the investment’s taxes from the portfolio when due, you’d had earned 8%. That’s a beautiful thing. 🙂

One more thing, don’t give up! If you can afford it, start dollar cost averaging now and stick with it as long as possible. You likely will benefit from it and certainly your wife and heirs will. Read Jonathan’s Guide on this site and you’ll gain some amazing insights on this as I have. In my case I’m 59, have almost 10 years of living expenses in a Vanguard Prime money market and the remainder in two Vanguard stock funds: 80% VTSAX and VTI (total US stock market) and 20% VWO (emerging markets). I’ve been at this since the late 80’s and have managed a bit over 12% annualized before taxes. I would have done better if I’d avoided silly bets on certain individual stocks and actively managed funds, but I was young and cocky. 🙂

Roboticus Aquarius
Roboticus Aquarius
4 years ago

Interestingly, the SS decision becomes breakeven at typical 50/50 nominal returns… but the value of a guaranteed 8% annual “return” by delaying SS is worth a lot. Nice Article; I think it legitimately highlights multiple misconceptions and common wrong turns.

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