5 biggest retirement savings mistakes to avoid

                As a group, Americans are woefully underprepared for retirement.

Roughly 1 in 3 don’t have anything at all saved for retirement, according to a spring 2016 survey by finance portal GoBankingRates.com. Even more disturbing, a 2015 study by the U.S. Government Accountability Office found that 29% of Americans 55 and older — that is, those theoretically toward the end of their working life — have neither a pension plan nor a dime in savings to support them in retirement.

Some folks have a good reason they aren’t saving, such as unemployment or health problems. But millions of others have the means and ability to sock away a decent nest egg, but simply haven’t managed to build up the savings they need.

  If you have the means and ability to save but are still way behind on the road to retirement, then chances are you’re probably making at least one of these common investing mistakes. And the sooner you can correct these issues, the more financially sound you’ll be.

Mistake #1: Underestimating longevity

In 1992, a Health and Retirement Survey asked thousands of 50-year-old Americans to predict whether they would live until age 75. Among the pessimistic respondents who said they had zero chance of surviving that long, more than half were alive on their 75th birthday.

“With the great news that you are likely to live long in retirement, maybe 30 years or more, comes important action and decisions you need to make before you get there,” said Dylan Huang, senior managing director and head of Retail Annuities, New York Life.

That means increasing your expectations for what you’ll need, and saving more and saving earlier to achieve that goal.

Mistake #2: Overestimating wage-earning years

Saving for retirement is always hard, because it involves forgoing the instant gratification of current spending in exchange for accessing those funds at a distant date in the future. But while it’s natural to prioritize spending now and saving later, the sad reality is you may not have the opportunity down the road to save when you’d like to.

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For instance, a 2015 survey from Voya Financial that found three out of five workers were unexpectedly forced into retirement earlier than planned.

Some workers “insist they will work until age 70, so their nest egg has more time to grow,” said Kimberly Foss, president of Empyrion Wealth Management in Roseville, Calif. “Trouble is, that’s not always possible.”

Mistake #3: Saving too late

Even if you are lucky enough to be able to work late into life, waiting to save will cost you big-time investment returns. Consider the following ways you can reach a $1 million nest egg:

• Investor A saves $10,000 a year and earns a 7% annual rate of return. After 30 years, he has saved $300,000 and has a roughly $1 million portfolio thanks to investment profits.
• Investor B saves $15,000 a year and earns a 7% annual rate of return. After 25 years, he has saved $375,000 and has a roughly $1 million portfolio thanks to investment profits.
• Investor C saves $23,000 a year and earns a 7% annual rate of return. After 20 years, he has saved $460,000 and has a roughly $1 million portfolio thanks to investment profits.

Let time and compound investment returns do the heavy lifting for you, rather than trying to save a lot of money in a short period of time.

Mistake #4: Not diversifying

Having too much of your net worth tied up in a single asset can be a recipe for disaster. The big declines for the stock market during the 2008 financial crisis or the crash in real estate prices thanks to the housing meltdown are the most obvious examples in recent memory.

Diversification should be about more than just your 401(k) or home equity, however, and should span instruments including life insurance or annuities, said Steve Martin, director at BKD Wealth Advisors in Chicago.

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And while many executives or small-business owners think their “best investment is often in themselves,” Martin adds, “it is still a good idea to diversify your investments” away from your own company if you have company stock or an ownership stake in the business.

Mistake #5: Putting kids above yourself

If you choose to make financial sacrifices in order to help your adult children, you are doing so at the end of your working life and the beginning of theirs. That simply doesn’t make sense, since the kids have more time to make up lost ground, and you don’t have that much time left on the clock.

“At some point in their youth, many pre-retirees had to go through a difficult financial period or two,” said Martin of BKD Wealth Advisors. “Think sharing an apartment with three others while living on mac and cheese. Unfortunately, many parents can’t seem to handle the idea of their children suffering the same indignations and spend money to support their children that should be saved for their own retirement.”