The National Center for Policy Analysis has just released a report titled, “Ten Ways to Wreck Your Retirement.” I would have to say a big AMEN to their analysis in this paper. I have listed below the Executive Summary of the ten points. If you would like to read the entire 24 page report, you can find a pdf copy of it here, Ten Ways to Wreck Your Retirement.

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 a dollar-for-dollar 401(k) 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 several thousand 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 essentially locked in their losses by selling their equity funds during the recent downturn.

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 consider diversifying among asset types (stocks, bonds, money market funds), as well as diversifying
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 their Social Security benefits are 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.

The NCPA is a nonprofit, nonpartisan organization established in 1983. Its aim is to examine public policies in areas that have a significant impact on the lives of all Americans — retirement, health care, education, taxes, the economy, the environment — and to propose innovative, market-driven solutions. The NCPA seeks to unleash the power of ideas for positive change by identifying, encouraging and aggressively marketing the best scholarly research.

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“Investor Education for Main Street America”

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"Investor Education for Main Street America"