Retirement: Don’t Do What I Did (Free Money Finance)

August 01, 2006

Retirement: Don’t Do What I Did

Nothing beats practical, real-life stories of people and their finances. They are simply great learning experiences for us all. In most cases, these are positive experiences (like Becoming a Millionaire -- A Real-Life Example), but in this case a financial expert talks about his six retirement mistakes -- and two things he did right -- in an Yahoo piece titled "Don't Do What I Did" . First, the six things he did wrong (with translations in parentheses from me where needed to help explain):

1. I didn't think ahead. (He didn't set a retirement number and develop a plan to reach it).

2. I flew solo. (He didn't get advice from a financial planner.)

3. I tried to outguess the market. (Ha! This is a mistake many seem to make.)

4. I may have shortchanged my wife. (He mis-calculated how to take his retirement money.)

5. I didn't know about "givebacks." (Social Security return payments made if you earn too much.)

6. I spent too much. (Isn't this the story most Americans are living?)

Then, here are the two things he did right:

1. I joined a 401(k) plan.

2. I created an exit plan. (Translation: estate plan.)

Here are my comments on the above. First on the things he did wrong:

1. You MUST decide how much you need for retirement and start working towards that specific number. I know it's not easy to do (there are lots of assumptions involved) as I'm currently working on setting my retirement number. But it must be done or you'll be left behind (and possibly without enough funds). While I'm working on mine, I'm fully contributing to my 401k plus saving in a taxable account.

2. What? Not getting help from a financial planner is a bad thing? Since when? Obviously, he thinks more of planners than I usually do. But then again, if you don't know how to handle your own money, you probably do need to pay someone for advice. Key tip: get references from friends and family on planners they've used for years.

3. Sucker! Ok, a bit crude, but I couldn't resist. No need for me to try and outguess the market -- I go with the market by investing in index funds.

4. I can see where this could happen. Lesson to all of us: do the calculations BEFORE deciding whether to take a lump sum or an annuity.

5. I'm counting on Social Security for zippo. Zero. Nada. If I get $1, that will be $1 more than I expect.

6. I'll say it again: spending less than you earn is the key to becoming wealthy.

Now for the other two:

1. Yep, I'm a big fan of 401ks too. Some of my thoughts on them: