10 Retirement-Wrecking Moves


Retirement should be a time to relax and enjoy the fruits of a lifetime of labor. Unfortunately, for many people bad decisions push the retirement horizon out of reach. As such, it is imperative that individuals understand the effects of these bad choices and take steps to avoid them. Let's examine 10 mistakes that can sabotage your retirement plans.


Many individuals are forced to postpone retirement because their nest eggs are not sufficient. This can be avoided by starting to save early. The amount you will need to contribute each year depends on how soon you start your savings program.

Even in instances where you can't afford to add the maximum amount that projections determine you need to save for the year, adding what you can afford can go a long way toward reaching your goal. For more, see Compound Your Way To Retirement and Why is retirement easier to afford if you start early?

Thinking it's Too Late to Get in the Game

Some of the common reasons for starting to save for retirement late in the game include pure procrastination, having to start over after a divorce, and getting the opportunity to contribute to a retirement plan for the first time after immigrating to the country at an advanced age. Regardless of the reason, thinking that it's too late will only compound the issue. Instead, you should look for ways to start saving. This may mean doing without many items that are not basic necessities. It is possible for individuals to achieve their post-work goals, even if retirement is just around the corner. For more tips, see Can You Retire In Five Years?

Missing Opportunities

While saving can be challenging, there are many opportunities that make it easier. Unfortunately, many people overlook these opportunities and miss out on the benefits. Big mistake! For example, employers that offer benefits under a 401(k) or SIMPLE IRA often include matching contribution features. However, many employees fail to receive this benefit because of a lack of awareness and understanding. Don't let opportunities to increase your savings pass you by.

Not Considering Healthcare Needs

The need for heathcare increases with age. This includes the need for more frequent check-ups and preventative healthcare, as well as the need for long-term care, both at home and in nursing homes. Individuals who fail to implement contingency planning to cover health-related expenses could find that a large percentage of their savings must be used to cover these costs. Prevent this by ensuring you have adequate health insurance. For related reading, see Failing Health Could Drain Your Retirement Savings.

Spending Too Much Too Soon or Too Late

Those entering retirement are often faced with the fear of spending too much too soon and, as a result, may hoard their savings to the point of just barely getting by. While caution should be exercised to ensure that your nest egg lasts throughout retirement, living on a diet of bread and water takes caution too. On the other hand, individuals who decide to splurge during their early retirement years without any regard for the future may find their bank accounts running dry. For more, see Enjoy Life Now And Still Save For Later.

Making Ineligible Rollovers to Your IRAs

Ineligible rollovers can mean having to pay severe penalties to the IRS. In addition, any taxable portion of the amount rolled over to your IRA must be included in your income for the year the distribution occurred. To ensure that this doesn't happen to you, you need to know which assets are not rollover eligible. For example, a common mistake is to assume that the RMD amount can be taken after the rollover is made. This is not the case because the first amount withdrawn during a year for which an RMD is due includes the RMD amount. For more see Common IRA Rollover Mistakes.

Making Excess Contributions to Your IRA

IRA contributions are limited to the lesser of 100% of eligible compensation or the contribution limit for the year. Should you contribute more than the allowable limit to your IRA, you must remove this excess amount from your IRA by the applicable deadline. Similar to ineligible rollovers, failure to remove the excess amount by the deadline will result in you owing the IRS a penalty of 6% of the amount for each year it remains in your IRA. To learn more, see Correcting Ineligible (Excess) IRA Contributions.

Making Ineligible Roth Conversions

A roth conversion is viewed by many as a good financial planning move because earnings accrue on a tax-deferred basis, while distributions are tax-free if qualified. However, not everyone is eligible for a Roth conversion - certain income limitations apply. If you make an ineligible Roth conversion, it can be corrected as a recharacterization. Should you fail to recharacterize an ineligible conversion on a timely basis, the amount will be treated as ordinary income from your Traditional IRA and an excess contribution to your Roth IRA. Therefore, not only would you lose the tax-deferred status of your IRA assets, but you would also owe a 6% penalty for each year the excess contribution remains in the Roth IRA.

Failing to Distribute Your RMD

You must begin taking RMDs from your Traditional, SEP and SIMPLE IRAs, qualified plan, and 403(b) accounts the year you reach age 70.5. Exceptions apply to qualified plan accounts and 403(b) accounts if you are still employed and your employer allows you to defer beginning RMD from such accounts until after you retire. Failure to distribute your RMD by the applicable deadline will result in you owing the IRS an excess accumulation penalty of 50% of the RMD shortfall. You may apply for a waiver of the penalty, but you are generally required to pay the penalty first and request the waiver thereafter. See Missed Your RMD Deadline?

Engaging In Prohibited Transactions

You are prohibited from using your IRAs in certain transactions. For example, your IRA cannot be used as a loan, serve as security for a bank loan, or be used to invest in collectibles. Engaging in these transactions could result in loss of tax-deferred status for the assets involved in the transaction and, in some cases, loss of tax-deferred status for the entire IRA. Learn more about avoiding prohibiting transactions in IRA Assets And Alternative Investments.
  1. No results found.
Related Articles
  1. Retirement

    5 Retirement-Wrecking Moves

    These common mistakes can sabotage your nest egg and your plans for retiring.
  2. Financial Advisor

    Retirement Planning: Don't Do These 6 Things

    If you’re putting in the work to build your retirement, you should put in the work to protect it. Here are six mistakes to avoid regarding retirement.
  3. Retirement

    10 Things You Must Know Before You Retire

    Don't put off your retirement planning - these 10 steps can make your later years much more manageable.
  4. Retirement

    Retire From Work, But Not Personal Financial Planning

    Here are some personal finance tips for those who want to live well after work ends.
  5. Financial Advisor

    How to Avoid Costly Social Security Mistakes

    Social Security is an important part of most retirement plans. Here are some costly mistakes to avoid.
  6. Financial Advisor

    Avoid These 11 High-Net-Worth Money Mistakes

    With larger sums come more chances for bigger mistakes. Here is a list of 11 common high-net-worth retirement planning mistakes — and how to avoid them.
  7. Retirement

    Can You Retire In Five Years?

    The countdown is on. Find out whether you'll be ready to leave the working world.
  8. Retirement

    Retirement Lessons To Teach Your Children

    If your retirement plan hasn't worked out, at least your children can learn from your mistakes.
  9. Financial Advisor

    Ready to Retire? Ask Yourself these 7 Questions

    Feeling ready for retiring? Before you make the jump, ask yourselves these questions.
  10. Retirement

    The 10 Worst Financial Decisions You Can Make In Retirement

    In this time of fiscal uncertainty, there are many financial decisions that can make or break you during your formative years.
Hot Definitions
  1. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  2. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such ...
  3. Death Taxes

    Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the ...
  4. Retained Earnings

    Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested ...
  5. Demand Elasticity

    In economics, the demand elasticity refers to how sensitive the demand for a good is to changes in other economic variables. ...
  6. Dark Pool

    A dark pool is a private financial forum or exchange for trading securities.
Trading Center