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Take charge of your retirement

Today's decisions determine tomorrow's lifestyle

Courtesy of USAA

You've probably imagined what your retirement will be like. You may be dreaming of trips to exotic locales, a beautiful new home where you can entertain family and friends, indulging in your favorite hobbies, or starting your own business. No matter what your plans, your retirement lifestyle will primarily depend on one thing: money.

J.J. Montanaro, a USAA CERTIFED FINANCIAL PLANNERTM practitioner, details the five major mistakes people make when planning for retirement – and how they can be avoided.  

The funnel

Retirement planning is like a funnel. It should begin broadly and narrow later in life, as retirement draws near.

If you are young – in your 20s or 30s – with a long retirement horizon, begin by forming good habits: save, enroll in your company's 401K, and begin investing wisely.

Once you hit 40, it's time to get serious. If you aren't already working with a planner, enlist help now to develop your personal financial roadmap. And make sure your investments are properly balanced between risk and reward.

Nearing retirement at age 55 or older? By this time, you should have a specific retirement plan and be heavily focused on your goals. Not ready for retirement? Get help now! Remember: better late than never.

Did you know?
Let's say you devote $50 a week toward your retirement nest egg. If you stash the cash beneath your mattress, after 40 years you'll have $104,000. But if you invest that $50 and earn a moderate 6 percent interest, after 40 years your nest egg will have grown to a pre-tax total of $414,567.51.

A big difference, wouldn't you agree?

This is a hypothetical illustration and not an indication of performance of any USAA product.
 

Mistake No. 1: A swing and a miss
Don't take your eye off the ball when planning for the future. Financial experts often use a three-legged stool as a metaphor for the sources of money Americans rely on for retirement. The legs represent Social Security benefits, pension payments, and personal savings and investments.

Economic and demographic changes have diminished the roles of Social Security and pensions, giving the third leg of the stool – personal savings and investments – increased importance. The quality of life you enjoy in retirement depends on the financial decisions you make today. Decide how much you should be saving, and follow through.

Mistake No. 2: Learning curves
It's the question many parents – and even grandparents – struggle to answer: What's more important, saving for retirement or paying for a child's college education?

The answer is simple: Secure your future, and then focus on your children's educational goals. Remember: Students can earn scholarships, work part-time, or take out college loans, but there are no scholarships or loans for retirement.

Mistake No. 3: Giving in to temptation
In the 1970s, the average time an American worker stayed with an employer was six years. In the 80s, it dropped to three years. And in the 90s, it dropped again – to just 18 months. When you change jobs, it may be tempting to spend the savings you've amassed in a 401K or another retirement plan. Resist temptation. Roll the money into your new employer's plan or into another retirement plan. Invest in tomorrow, don't live only for today.
 
Mistake No. 4: Spending, spending, and spending some more
We live in an era of instant gratification, but accumulated debt – credit card balances, new cars, and overextending on your mortgage – is a threat to your financial security in retirement. In fact, many Americans find themselves going to work each day long after they'd hoped to retire, simply because their debt loads are too high. Credit can be a useful tool when properly used, but don't let it spiral out of control. 

Mistake No. 5: Going it alone
Remember the old adage: People don't plan to fail, they fail to plan. Enlist the help of a financial planner – an expert who knows the ins and outs of saving for retirement. How much money will you really need? What's the best way to get there? An experienced, certified planner can tell you where you are financially, devise a strategy for reaching your goals, help put the plan into action, and guide you each step of the way.
 
J.J. Montanaro combines his expertise as a CERTIFIED FINANCIAL PLANNER™ with USAA Financial Planning Services with his 19 years of military service to help families get their finances into shape. USAA, a diversified financial services company, is the leading provider of competitively priced financial planning, insurance, investments, and banking products to members of the U.S. military and their families.  Named by BusinessWeek as  Customer Service Champion in its March 5, 2007 issue, USAA provides convenient and accessible financial products to its 6 million members. 
 For more information about USAA, or to learn more about membership, visit usaa.com.

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