In an ideal world, we would start contributing to our retirement savings accounts the moment we receive our first paycheck from our first job. With the rumor mill of declining social security benefits, you can no longer rely on this form of funding in retirement. In this time of fiscal uncertainty, there are many financial decisions that can make or break you during your formative years. Below are the ten worst financial decisions you can make in retirement.

Assuming You Will Retire at a Specific Age
There are many factors that can influence the age at which you retire, some of which are not in your control. An unfortunate layoff, forced early retirement or unseen health issues can cause you to retire earlier than expected. If you are counting on the last few years of savings to set everything in order, you may find yourself with a lack of income in a tough job market. This is why it is absolutely imperative that you begin your retirement planning as soon as you can. On the other hand, just because you reach 62 or 65 doesn't mean that you should automatically retire. Take the time to do a cash flow analysis and speak with a financial planner to determine when you can comfortably retire.

Relying on the Advice of Friends and Family Instead of a Professional.
Everyone has a friend or family member who is a self-proclaimed financial genius. They may even provide great tips for saving, but it is still best to sit down with a professional who can directly assess your finances. Your friend may have done a great job with his or her own retirement, but this doesn't mean he or she understands your specific needs. In a worst-case scenario, he or she knows even less than you do and your retirement begins as the proud owner of a South American beet farm.

You don't need to be wealthy to sit down with a financial planner or retirement specialist. The earlier you begin creating a retirement plan, the easier it will be to manage in the future. The value of a professional who can integrate all of your income and savings into a cohesive plan cannot be understated.

Starting Social Security Too Early
Many people want to begin collecting their social security benefits when they turn 62 and first become eligible. What many people don't realize is that the amount of benefits you receive scales with the age that you begin receiving benefits. The longer you wait to start collecting, the greater your initial annual income. The payments received if you begin collecting at age 70 (when benefits no longer increase) are nearly double those you would receive if you begin at age 62.

Social Security benefits offer many advantages over other retirement options and great care should be taken to maximize the return. The payments adjust with inflation, are uninfluenced by the stock market, are subject to little or no income tax, and can be passed to your spouse upon death. Careful financial planning can allow you to delay the onset of the benefits and reap the rewards of a very secure, lifetime payment.

Overlooking Tax Consequences
One of the primary benefits of starting an IRA is that, when withdrawn correctly, the earnings are tax-free. If you don't understand the associated penalties for either removing money too early or too late, you can find yourself paying enormous tax penalties, which can severely affect your retirement. Almost all retirement options have very specific rules regarding fees for withdrawing money at the wrong time. If you are spread between taxable and non-taxable accounts, withdraw some from both to avoid a heavy tax hit by moving into a higher bracket. This is another reason why you should plan your financial future with a professional retirement specialist.

Not Updating Your Retirement Plan
Reaching retirement doesn't mean that it is time to abandon risk. Many retirees make the mistake of dumping higher risk equities from their portfolio in favor of low-risk bonds. The problem is that bonds don't provide the long-term potential required to sustain a retirement income for twenty-plus years. CDs and annuities can provide guaranteed revenue streams, but you trade growth for security. Don't be afraid to retain an asset allocation that is heavy on equities.

Failing to Understand Distribution
Take the time to understand when and how to remove and transfer funds from your retirement accounts to personal accounts. Initially, if you need to move money, it is best to move funds that are not subject to income tax so that you can avoid tax penalties. Withdrawing early from a 401(k) or improperly rolling into a new plan can incur tax penalties of up to 20%. Don't let a simple mistake or misreading impact the next 20 years of your life. The objective of your distribution strategy is to convert funds from pre-retirement accounts into post-retirement accounts that will provide your retirement income. Sitting down with a financial planner to prepare your distribution strategy is highly recommended.

Underestimating Future Healthcare Spending
The first unknown to consider is the potential length of your life. If you retire at age 65 and live until age 90, that's 25 years worth of income and expenses you need to account for. Medicare and Medicaid can help but there are many things they do not cover. You may even find yourself ineligible based on your net worth. The best way to reduce these potential costs is to remain active and healthy as you age. Preventative exercise in your 60s is a great investment for your 80s. You've worked hard to reach retirement and you should invest in your ability to enjoy it. A serious illness for yourself or your spouse could possibly destroy your savings. Fidelity estimates that a 65-year-old couple will incur $220,000 in medical expenses during retirement.

Failing to Diversify Your Risk
Many people who believe their personal savings and Social Security benefits will be enough to take care of their retirement. The addition of a 401k or IRA can give you a nice boost, but there is more you can do with your income. To protect yourself against the market, while providing the potential for strong returns, spread your investments across a range of risks. This is where a professional adviser can help structure your asset allocation to create a portfolio with a mix of low-risk bonds, CDs, and annuities as well as higher-risk stocks.

Retiring With Too Much Debt
You should make paying off high-interest credit cards a top priority when approaching retirement. It may not be possible to begin retirement entirely debt-free, but the interest payments on high-interest accounts will eat away at your savings. If you are in good health and can afford to work for a few more years, delaying your retirement may give you the breathing room to eliminate this debt. No one wants to spend his or her retirement paying off pre-retirement expenses.

Refusing to Downsize Lifestyle
Depending on the level of savings, retirees should expect to reduce their living income by 25% or more. Many people are tempted to immediately go on a vacation or make a big purchase, but these decisions can have a lasting effect on future savings. The two major areas that a retiree can address are his or her home and vehicles. Moving into a smaller house or to a less expensive region can take a large chunk out of your expenses. Reducing the family fleet to a single vehicle or acquiring a more fuel-efficient vehicle will also free up more income. This is the tradeoff you make for the free time that retirement allows.

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