The Malachi Group

Retirement Killers

1) Not having a clue of how much to save. The 2008 Retirement Confidence Survey reports only 47% of workers have calculated how much they need to save for retirement. If you don't know how much you will need when you retire and what age retirement can begin you don't have any idea if you can make retirement work for you. To calculate your retirement savings program go to www.dinkytown.net. They have a free retirement calculator. You need to have Java installed in your PC. Be patient it takes about 30 seconds to load the program once you click on it. This calculation will give you the exact amount you will have at a certain age based upon your current 401k balance, savings rate and estimated return (which you input). You can also include an estimate of social security. The program will also tell you when you run out of money.

Remember the following statistic when calculating how much you will need for retirement. You need to eat! The average American lives 22 years in retirement. Most of us will have a spouse. let's say you are really money conscious and can eat on $5 per meal. Multiplying that out - three meals a day, 365 days a year, at $5 per meal for each of you for 22 years = $240,900. So just to keep you fed you need almost a quarter of a million dollars! I just heard this morning that the average American eats at a restaurant 207 times a year. Hard to imagine that can be done at $5 per meal.

2) Cashing in your 401k when you change jobs will kill your retirement and make the government wealthier. A Hewitt Associates study found that 45% of workers cash in their 401k when they switch jobs. The workers take the money and then pay a 10% penalty on the money, and income taxes if they are not yet 59 1/2 years old. Many workers are under the impression that they will only have to pay a 10% penalty which is not the case. They haven't paid income taxes on the 401k money so they will have to at tax time. What a miserable awakening to realize you will have to pay the IRS taxes on the 401k money you spent. A shocking surprise, that angers most people. Unfortunately there is no way to rectify the situation. By tax time you owe and all you can do is pay the IRS. If that isn't painful enough workers have taken out of their retirement plan and effectively have pushed their retirement age out further because workers have spent there retirement money now. Workers spent the retirement money that was going to accumulate and grow for years and years, but now is gone. History shows that with good years, OK years, so so years, difficult years and painful years the market return has averaged just over 10% for the last 70 years. For me, investing in diversified investments in the stock market for the long term is the best return for 401k's that I find.