The recession couldn't have come at a worse time for the baby boomer generation. Shrinking home values. Mounting job losses. Retreating stocks and mutual funds. A freezing -- or the disappearance -- of pension funds.
What's a boomer to do? Or, for that matter, anyone at any age who's still trying to figure out how -- and how much -- to save.
Any investor suffering a recession depression can take solace in the fact that they're not alone. The economy's implosion caught just about everyone off-guard, from Wall Street's best and brightest to Main Street's blue-collar worker.
Now that things are starting to look a little better, and stocks are slowly climbing out of the pit into which they plunged, the question is how to make up for lost time. Look around, and you're bound to experience an information overload.
Here is a two-word summary of all that advice floating around from the retirement gurus who are writing books, appearing on cable TV shows or setting up websites: Be pro-active. You are the captain of the Good Ship Golden Years, so it's all on your shoulders whether your retirement plan has the financial stability to sustain you throughout your lifetime.
That was the first lesson. And lesson two? Exercise caution. Don't believe everything you read, and remember: This isn't Monopoly money that we're dealing with here. The actions that you take will determine whether you have a comfortable retirement, or are left struggling to make ends meet.
As boomers approaching retirement age look for ways to recover from what is being called a lost decade of investing, there are some basic missteps that they need to avoid. Here are 11 mistakes that people often make when planning for retirement.
1) Giving Up
First off, it's never too late to start saving. Times are tough, and with the recession many Americans wound up losing their jobs or benefits, or were forced to take pay cuts. If you escaped unscathed, congratulations. If not, it's time to assess your situation, perhaps lower your expectations and move on.
But as tempting as it is to reduce or stop contributing to your 401(k) and other retirement accounts, the short answer is don't do it. This is especially true if you have an employer that still provides matching contributions; why not take advantage of that free money?
2) Thinking Short-Term Instead of Long
The most important thing is to have a retirement master plan and stick to it. Lifespans are increasing, and as we live longer, many people underestimate just how much money they're going to need.
Whether you're 26 or 62, put aside what you think you can afford, and then some. Unforeseen expenses, like new tires or plumbing repairs, will crop up, but it's also likely that your spending will fall off as you age.
3) Relying Heavily on Social Security
For many years, people depended on Social Security as their primary retirement fund. That and a pension from putting in 40 years in the factory earned you a decent retirement.
Pensions have disappeared along with the factory jobs that relocated overseas to cheap labor markets, and the Social Security system is going broke (depending on who you listen to, maybe in less than 20 years).
Most companies decided long ago to put you in charge of your retirement saving, mostly through 401(k) programs, with the added enticement of supplying some matching funds. Therefore, if you don't have sufficient savings for retirement, it's not because they didn't provide you with some viable options.
Many retirees often find that a 401(k) isn't enough. That's why it's important to look at other investment options outside of the company-provided route, such as mutual funds, stocks or bonds.
4) Forgetting About Quality
The majority of Americans aren't going to be cruising the Mediterranean or wintering in the tropics every year after they retire. Your primary goal in planning for retirement should not be a high standard of living, but a high quality of life.
For some, that could just mean eating out once a week, or once a month. Others might be looking to fund trips to see the kids and grandkids a few times a year. Whatever the luxury that you want to include after you retire, make sure that you plan for it.
Airfares are not going to be getting any cheaper in the decades ahead, so if you want to fly from one coast to the other to visit the kids, plan for it. If you know that you'll need to buy a vehicle in 5-10 years, plan for it. If the house is going to need upkeep such as painting or new mechanicals, plan for it.
5) Rising Cost of Health Care
Every day, surfing the Internet will turn up some scary headlines: Entitlements such as Social Security and Medicare are headed for the chopping block by Congress. Whether that happens or not, it's important for retirees and those heading towards retirement to understand the Medicare system and figure out how they'll be paying for their expenses.
Americans are living longer, but they're also becoming afflicted with illnesses that can cost tens of thousands of dollars to treat or maintain. Many people are overweight, and the side effects include diabetes, cardiovascular disease and kidney problems. Too many people still smoke, leading to lung cancer.
Being healthy is more important than being wealthy, but nowadays it does cost a lot to stay in peak form. Planning should include fulfillment of those New year's resolutions that have fallen by the wayside to lose weight, join a gym or stop smoking.
6) Using Retirement Savings as a Piggy Bank
When your money isn't working for you, you're going to lose out doubly. Perhaps years of long-term savings evaporate because of a short-term situation.
Taking money out of an IRA or 401(k) account is tempting when unexpected bills or a child's college costs come knocking. If you borrow from that account, you're facing the possibility of tax penalties, plus you're losing ground on letting that money earn interest and grow towards another, long-term goal.
In the recent tough times, some people have borrowed against retirement accounts, only to then lose their jobs. Often, they were required to repay those loans, right at a point where they could least afford to open their wallets.
7) Being Too Conservative -- or Too Aggressive
Some investors in years past were content to sock their savings away in bank accounts, CDs or money market funds, maybe some ultra-safe bonds. That 5 to 10 percent interest was a dependable, conservative sure thing.
When the economy collapsed, so did that strategy. And many people, fearful of losing their money in stocks or mutual funds, are still letting their cash sit idly by, earning little or no return.
The experts say the recession actually ended in the summer of 2009, so the recovery is under way, albeit slowly. Unlike past downturns, this recession was deeper and more widespread than anything most Americans have ever experienced in their lifetimes.
The best course is to go slow, but do explore the investment options with which you're comfortable. It's not wise to go hog wild into stocks, however, even though the recession certainly did create some bargains for those with investing experience.
Remember Warren Buffett's philosophy, to invest in what you know.
Just as it's not a good idea to put all your money in the stock market, your money isn't going to produce any income in the bank down the street. Do your homework, and consider some mutual funds with a strong track record, in good times and bad. Companies including Morningstar and Lipper rate the funds -- but again, you're going to find disagreements even among the experts.
8) Ignoring the Problem of Inflation
No matter what you do, inflation is always going to be the 800-pound gorilla in the corner. It's the unknown factor, just like whether your health will hold up. But it's always going to be there.
If you're a baby boomer, think back to what you paid for a burger and fries at McDonald's in the 1970s or '80s. That should put things in perspective. Remember when gas stations used to have price wars that would drop a gallon down to less than 50 cents? How much did your parents pay for their house, compared with what you did in the '80s or '90s, and what your kids are paying today?
Prices will go up, so make sure you take inflation into account. The government's Bureau of Labor Statistics has a neat little calculator, which will give you an idea of how inflation can weigh on your finances. For instance, to have the buying power of $100 in 1980, it would take $265.10 today.
9) Waiting Too Long to Get Started
As we said, it's never too late to start, but it's often impossible to get where you need to be if you wait. And while it's never too late to think about retirement, earlier is better -- much, much better. Five or 10 years can make a big difference in how your money grows.
It's the story of compound interest -- the interest that your money is earning continues to grow atop the principal, and the interest earns interest. Starting to put $20 a week away when you're in your 20s is far better than playing catch-up when you're in your 50s.
10) Not Taking Advantage of the Pros
Few of us are experts when it comes to retirement planning. While the Internet has opened up a wealth of information on billions of topics, sometimes a financial advisor can help you plot your course through the investing minefield.
Of course, there are many charlatans out there, or those who hang out their shingle as an 'advisor' only to rip off the unassuming. So again, it's up to you to do your homework, and find a certified planner who can meet your needs. Ask your friends if they know of anyone, check with your local Better Business Bureau or state regulatory agencies, or ask the planner if you can talk to some of his or her other satisfied clients.
11) Not Planning to Have Some Fun
Retirement planning is serious business, but you need to set aside some money to enjoy this point in your life that you've worked 40 or 50 years to attain.
Maybe it's not shopping at Tiffany's for Christmas gifts, but it could mean going to the opera, if that's your thing, or taking in a ballgame. Walks in the woods don't carry a big price tag (maybe the gas to drive to a state or national park). Many universities offer seniors the opportunity to audit courses at reduced fees -- or even attend for free. Matinee performances of orchestras, plays or other arts events are usually cheaper than primetime.
Buying what you need online from reputable merchants can translate into big savings over brick-and-mortar merchants. E-commerce can offer significant bargains, with even big chains like Macy's, Target and Kohl's putting special sale items on their websites, usually with free or cheap shipping costs, for safe online transaction experiences. Whatever your favorite activities are before retirement, try to keep them up when you have more time to enjoy them.
Remember, you've earned your retirement, but reaching that point of financial security requires planning, sacrifice, and a lot of hard work. To make sure that you can enjoy that part of your life, put your money to work while you're still working.