Beware of these six common retirement mistakes

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Our retirement is our responsibility, yet many people do not think about how they are going to spend their retirement time. More importantly, even fewer people plan on how to fund it until it is too late. If you are old enough to drive, it is time to think about retirement.

In March 2013 the Employee Benefit Research Institute found 57 percent of U.S. workers have less than $25,000 in total household savings and investments, excluding their homes.

Of workers and retirees, 28 percent reported no confidence that they will have enough money to retire in comfort, the highest level of concern in the study’s 23-year history. Only 66 percent of Americans report having any retirement savings, compared to 75 percent in 2009.

Only 50 percent of Americans say they can put their hands on $2,000 cash for an emergency.

Many Americans are not good at saving money and dismally poor at saving for their later years.

What are the common mistakes and how can we avoid them?

Starting too late. Many of us believed we were immortal in our 20s. By our 40s and 50s, we regret not only neglecting our physical health but also ignoring our financial health. Those lost decades can mean hundreds of thousands in lost retirement savings because we cannot take advantage of compound interest.

People often don’t start saving because they don’t think it will make a difference. Saving just $100 per month starting at 20 years old at a 10 percent interest rate means having $1,761,413 when you turn 70. Waiting until you are 30 to start saving reduces that amount to $643,048. Time matters!

Not saving enough during your working years. The average person working today will likely live to be almost 90. Let’s say your parents support you until you are 21, and you want to retire at 65. For the first 21 years of your life and the last 25 you are not producing income for yourself. From age 21 to 65, you have to make enough to support not only your children for their first 21 years, but also to fund the last 25 years of your life.

Funding your child’s college fund instead of your retirement account. Yes, you want the best for your children, but they can borrow money to go to college, while you cannot borrow money to retire. Encourage friends and family to contribute to your child’s college fund instead of giving them birthday or Christmas presents. The children may not appreciate it at the time, but later they will be very grateful.

If your relatives jointly contribute just $41.66/month ($500 per year) to a child’s college fund, after 18 years of contributions at 10 percent your graduate will have $25,227.

Not taking advantage of the ROTH IRA while you still can. The ROTH IRA is a fantastic retirement medium because it allows your money to grow tax-free forever. You are not taxed on capital gains, dividends or profits in a ROTH account. Single persons can contribute $5,500 per year into a ROTH IRA account (like a traditional IRA) but only if they make less than $112,000 per year. For married couples the income restriction begins at $178,000.

Underestimating your costs of living in retirement. Chances are, with more free time, you will spend money. During retirement you want to travel, visit friends and family, and spend more time on activities, which cost money.

For years, many financial planners told clients that they only needed 65 percent of their working income for retirement. I disagree for two reasons. First, those planners often were not considering what inflation (prices going up over time) would do to purchasing power. Second, some costs in retirement can be higher, not lower, such as health care, medications, insurance, entertainment and home maintenance.

Social Security was developed as a retirement supplement, not as a single source of income, and it is dwindling. Baby Boomers are heading into retirement suddenly realizing that they are not going to be able to sustain themselves. Their children will realize that during adulthood, their lifestyle will be impacted when they have to support their aging parents.

Bottom line: Your retirement is your responsibility. Start now. Be smart.

Mary C. Kelly is the author of the best-selling book, Money Smart: How Not to Buy Cat Food When You Don’t Have a Cat, available on Amazon. Mary can be found at