8 costly retirement planning mistakes you need to avoid

Avoiding these mistakes may help you in planning for retirement. (iStock)

Americans across the generations struggle with retirement saving and planning with many worrying they’ll run out of money, won’t be able to maintain their lifestyles or cover rising health care costs.

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Understanding the errors that could cost you money down the road is important in preparing for retirement.

Here are eight mistakes to avoid.

1. Not saving early

Financial experts emphasize the benefits of saving early. The longer you save, the more the power of compounding – the snowball effect from interest or investment gains – can supercharge your assets. A compounding calculator can illustrate how this works.HOW ARE HIGH-YIELD SAVINGS ACCOUNTS DIFFERENT FROM TRADITIONAL SAVINGS ACCOUNTS

The National Endowment for Financial Education’s Smart About Money website offers this example:

Someone who saves $1,000 a year in an IRA for only nine years, from ages 22 to 31, would see that money grow to $243,865 by age 65, assuming a 9 percent interest rate. A person who saved $1,000 a year for 34 years, from ages 31 to 65, with the same interest rate, would have only $196,982 at age 65.

Have you waited to start saving? Don’t despair. Not saving at all is a bigger mistake than not saving early. Save what you can and take advantage of federal catch-up provisions that allow those 50 and older to contribute more to retirement plans.

2. Leaving money on the table

Many employers match employee 401(k) retirement plan contributions. A company, for example, might match employee contributions up to 3 percent of annual income. If you earned $60,000 a year, you’d miss out on the company’s $1,800 annual match if you didn’t contribute to your 401(k).

SHOULD YOU LOWER YOUR 401(K) CONTRIBUTIONS TO PAY OFF DEBT?

Another 401(k) bonus, even if your employer doesn’t match: Your contributions, deducted from your paycheck on a pretax basis, can lower your current tax bill by reducing your taxable income.

3. Not considering disability

Workers may envision a retirement rich in adventure, or expect to work into their 70s or beyond. It’s important, however, to plan for the possibility that disability or illness may limit the opportunity to work, or require extra care at home or a nursing facility.

PROS AND CONS OF LONG-TERM PERSONAL LOANS

Long-term care and disability insurance can help pay for these developments and protect you financially, according to the U.S. Department of Health and Human Services. Explore these insurance options well before you’re likely to need them.

4. Not protecting your health

“The first health is wealth,” author Ralph Waldo Emerson wrote. Indeed, taking good care of yourself makes sense physically, mentally and financially.

A nutritious diet, exercise, adequate rest and regular checkups can help prevent disease and disability or catch problems early. That means the ability to work longer if you want to, enjoy retirement more, and avoid or delay expensive long-term care.

A healthy person also is more likely to qualify for long-term care, disability and life insurance -- and to secure these types of coverage at more affordable rates.

5. Not calculating your retirement costs

Key to determining whether you have enough money in retirement is understanding what your expenses are likely to be. Some job-related expenses may fall by the wayside, but you’ll need food, clothing, housing, utilities, transportation, medical care and more.

A retirement expense calculator can help you estimate costs and figure out how well Social Security benefits, 401(k) funds, part-time work and other income sources will cover them.

6. Tapping into retirement accounts early

Sometimes it makes financial sense to borrow from a 401(k) – to eliminate high-interest credit card debt, for instance, or to make a down payment on a home.  Or you might need an emergency hardship withdrawal.

These moves come with risks, however. Withdrawals can cause you to miss out on market gains, sap your account and potentially leave you owing the government thousands in taxes and early-withdrawal penalties.

This calculator can help you estimate the consequences of a retirement-plan loan.

7. Mistiming Social Security benefits

While circumstances may require you to take early Social Security payments as soon as you’re eligible, at age 62, it could pay to wait if you can.

Taking Social Security early means you’ll receive lower benefits than you would if you waited until full retirement age, which is now 66 or 67 for those born in 1943 and later.

If you can delay applying for Social Security even later, you’ll enhance your benefits each year you wait, up to age 70, when you’d receive 132 percent of the full benefit – potentially hundreds of dollars a month more.

Timing Social Security benefits can be tricky, especially for married couples and those with dependent children, so consider consulting a financial adviser or the Social Security Administration for guidance.

8. Not planning

Making a retirement plan is important for your financial well-being. Whether you turn to do-it-yourself financial planning sites or real-life advisers, it’s important that you equip yourself with good information and guidance so you can plan a financially sound retirement.

Whether you’re 22 or 62, it’s vital that you prepare for retirement. Avoiding the pitfalls can help keep you on the right course so you can better enjoy life after you leave the workforce.