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Retirement: 4 Mistakes to Avoid

Courtesy of MoneyWatch blogger Steve Vernon, this morning I spoke about 4 retirement mistakes to avoid. I know some of them are tough to hear and perhaps impossible for some, but alas, they may help you maintain that nest egg throughout what we all hope is a very long and healthy retirement!

I do 7 of these television segments every Tuesday and Thursday for various CBS markets and it's always interesting to hear feedback from the producer/anchor teams, as well as viewers in the local markets.

One anchor team asked whether they could pose an additional question about the topic.

"How much money do people need to retire on average?"
I constantly field this magic question, with the following annoying response: "There is no answer to that question--every single person has different needs, which is why it's so important to do your homework!" This is usually followed by an audible groan.

Here's how to execute your homework:

Visit your retirement plan web site, or use one of these on-line calculators to see how close you are to hitting your "number." The tricky part: Those calculators ask you to estimate a bunch of things that even economists don't know for sure. Our crystal ball isn't perfect, but these sensible estimates can help:

  • Inflation assumption: 4.5 percent
  • Rate of investment return before and after retirement: Consider your risk assessment and err on the side of being conservative. My recommendation is 6-7 percent before retirement and 4-5% after retirement.
  • Life Expectancy: If you're younger than 50, use 95, if you're older than 50, use 90.
  • Annual Income Need: if you know what you spend now, use 90-100 percent of that number. You can use less if you plan to significantly downsize during retirement, but remember: we're all likely to pay more for health care in the future, so might as well plan now. If you don't know what you spend now, you have an extra level of homework--find that number!
If you're on track to meet your retirement goals, fantastic! For everyone else, when the output spits your monthly contribution number, you might feel a little sick. Don't worry--that's normal. You may need to boost your retirement contribution, plan to work longer or do some combination of both.

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