1) Underestimating the effects of inflation: If you retire on $4,000 month today, in 15 years @ 3% inflation you will need $6,232 month just to stay even with the cost of living. Moral: Do not invest solely in fixed interest investments; build part of your portfolio with inflation hedges, e.g.. mutual funds, exchange traded funds, real estate etc.

2) Not properly allocating your investments: Putting all your assets in fixed interest accounts runs the risk of falling behind the cost of living. (See above) Conversely, all your assets in inflation hedges puts your assets at risk of principal loss at the time of your life you can least afford it. The Watchword here is Balance! (Splitting your accounts between stocks, bonds, CD’s, annuities, real estate, gold etc., based on individual suitability).

3) Underestimating the effects of taxes: Uncle Sam and his progeny (states, municipalities) continue to want their pound of flesh. Design your portfolio and strategies to keep them at bay. Potential Solutions include tax advantaged investments like mutual funds, exchange traded funds, tax-exempt bonds, real estate, annuities etc.

4) Underestimating your lifetime spending needs: The old rule of thumb was most people needed 60% to 75% of their pre-retirement income during retirement. Nothing could be further from the truth, unless your retirement highlights will consist of a regular diet of bean suppers and watching the grass grow.

5) Having unrealistic investment expectations: The 1970s taught us that the stock market does not go straight up always and forever, the 1980s taught us CDs do not pay 16% forever, and recent Bear Markets helped us remember the stock market lesson we forgot from the 70s.

6) Underestimating time you will spend in retirement: Long gone are the days we retired to the rocking chair at 65 and to our final resting place at 68. We are routinely living through our eighties and even into our nineties, and that’s a lot of years we must take care of ourselves. Solution: Make certain you design your retirement plan to pay you a quality of life income you cannot outlive.

7) Mismanaging your deferred assets: There is a time to use your tax deferred assets i.e. IRAs, 401ks, annuities etc., and a time to defer. And it is extremely important to understand the difference.

8) Failing to plan for unexpected illness: If not properly planned for a cataclysmic illness can decimate your nest egg, or at the very least leave you financially strapped for life. Solution: Be certain to carry sufficient insurance and employ available legal strategies to protect you and your family.

9) Failing to plan for life after retirement: Many so look forward to retirement they forget to consider just what it is they will do with all that free time. The time for plotting your new life course is before you retire!

10) Failing to plan for incapacitation or death: Either event can leave the family in a difficult situation. There are many solutions, but they usually must be implemented before they become necessary.

11) Choosing the wrong assets for generating income: The wrong choice(s) could cost a great deal of unnecessary tax, whittle away at your principal, or expose you to a high level of market risk. (See #1 and #2)

12) Choosing the wrong retirement plan payout options: Selecting the wrong option could leave a great deal of cash on the table, or a spouse financially strapped after the death of the pension owner. Possible solutions may include selecting a spousal benefit payout plan, or purchasing an insurance policy on the life of the pension owner, or some combination of both.

13) Investing haphazardly rather than prudently managing investment assets: Managing your assets in a prudent and formalized manner can lead to far superior results over the long term.

Prologue: Well, it turns out to be a bakers dozen, not to mention many I probably have not discussed! I could not help myself because another would come to mind as I went along. In my 26 year career I have seen every one of these mistakes made by many, many people. My job, and my hope, is to provide guidance to all those I can so mistakes can be avoided or at least minimized. Your long term retirement should be a fulfilling and rewarding journey, with no concern or worries about financial shortfalls or setbacks.

Originally written and published by Steve Hood 3/6/2007