Retire at THIS age to live the longest.
According to the NCPA, these are the most common and damaging financial decisions individual investors can make:
1. Don't make saving a habit.
Young workers may think they have plenty of time to save later, but setting aside a little bit of money on a regular basis throughout one's working years produces a greater nest egg than setting aside a large amount of money later on.
2. Leave matching funds on the table.
Not taking advantage of an employer's matching contributions to a 401(k) account is like turning down a raise. An employee who turns down an account match of up to 5 percent of his salary is passing up a 5 percent bonus paid with untaxed dollars.
3. Borrow against 401(k) savings.
This is a surefire way to set back one's retirement plan by thousands and thousands of dollars through lost compound interest. A $25,000 loan today can cost more than $175,000 in lost interest retirement income over 30 years.
4. Cash out 401(k) savings.
Cashing out a 401(k) account when changing jobs means that more than one-third of the balance can be eaten up in taxes and penalties.
5. Jump in and out of the market.
In 2008, 401(k) plans lost an estimated $2 trillion in value. But this "loss" would have been on paper only were it not for the fact that many workers locked in their losses by selling their equity funds.
6. Rely on home equity.
Purchasing a home and selling it years down the road does not always produce a significant profit on which to retire. Even before the housing bubble burst, the average home was a mediocre investment. One dollar invested in stocks in 1963 would have grown to $12.36 by 2006, while the same dollar invested in a house would have grown to only $1.79.
7. Do not diversify savings.
Relying on one type of investment is a recipe for disaster. It is important to diversify among asset types--stocks, bonds and money market funds--as well as diversify within each type of asset, rather than holding one stock or bond.
8. Underestimate longevity.
More people are living longer. This means that retirees should have strategies to ensure they don't outlive their money, including working past retirement age, annuitizing retirement account money and staying at least partially invested in stocks.
9. Ignore inflation.
When a household's income, combined with half of their annual Social Security benefits, exceeds a certain threshold, a portion of those Social Security benefits is subject to federal income taxes. The thresholds are not indexed. Over time, inflation pushes more and more retirees into the income range where they must add 50 cents of benefits to their taxable income for every dollar their income exceeds the threshold. This means their marginal tax rate will be 50 percent higher!
10. Stay in debt.
Entering retirement debt-free is essential to being able to maintain a comfortable standard of living.
