Tips for achieving your retirement goals

Millions of working Americans find it's a challenge just to pay for their house, car, insurance, child care and other expenses each month. So how can people even think about setting aside money for their retirement- 20, 30 or even 40 years away?

The reality is that most of us can't afford not to save for retirement. People are living longer.They're staying more active during the good times of retirement and facing skyrocketing medical and other costs during the bad times. We can't assume that Social Security and corporate pensions alone will carry us through our retirement years.That means each of us should commit to saving money for the distant future, even as we spend for the here and now.

We can't predict the future, but we can help you learn from the past, including the errors people have commonly made with their retirement planning and savings. Here's a list of 10 common mistakes and miscalculations on the road to financial security- wrong turns we want you to avoid.

1. Saving too little. How much of your money should go to retirement savings? The answer depends on factors such as how many years until you retire, how much you already have in savings and pensions, what kinds of expenses you foresee in retirement, and the impact of inflation on your future buying power. To help you figure out how much you should be saving, consider filling out one of the many worksheets found in books about retirement savings and in brochures produced by banks, brokers and consumer groups (such as the American Association of Retired Persons, or AARP). There's even low-cost, interactive computer software available that does the calculations for you. If you find these worksheets confusing or intimidating, ask a trusted friend or advisor to help.

When in doubt, perhaps the simplest approach is this: try to put 10 to 20 percent of your income each year into money toward your retirement. Most families can do that if they make savings a priority and keep debts and spending manageable. "If you're saving out of your paycheck but acquiring additional debt, you're not really saving," warns Craig Hoogstra, director of the AARP's mutual fund program in Washington.

Regular, automatic savings programs- such as payroll contributions into retirement accounts and monthly debits from a bank account into a mutual fund- also help make it "painless" to set money aside.

2. Starting too late. The sooner you begin saving, even with relatively small amounts contributed year after year, the faster you can develop a solid retirement fund. "Through the magic of compound interest, a little bit of money saved and invested over a long period can grow to be a lot of money," says Wynette Stuntz, a certified financial planner in Houston and a member of the International Association for Financial Planning's consumer education council.

Unfortunately, too many people delay saving for retirement until they meet other goals, such as saving for a child's college education. "They really should save for all their goals, including retirement 20 or 30 years from now," says the AARP's Hoogstra. He says some families solve the dilemma of whether to save for college or retirement by deciding early on to send their kids to a state school or to take out student loans.

If you're still nervous about committing dollars to long-term savings, keep in mind that, under certain circumstances, you can borrow from your retirement savings accounts or withdraw money without penalty. But Stuntz suggests that instead you set aside "emergency money" (in case of a job loss or a major unexpected bill) equal to three to six months of your typical expenses. "This investment or savings account should be accessible with little or no loss of principal and no penalties," she says, "and will provide a financial cushion to rely on in an emergency before having to dip into your retirement savings and shortchange yourself at retirement."

3. Not taking advantage of tax breaks. For whatever reason, many people who are able to invest in a 401(k) or similar retirement programs through their employer don't take advantage of the opportunity. The 401(k) is a deal too good to pass up- earnings can build quickly because they're tax-deferred and certain contributions may reduce your taxable income. Many employers even add money to your account as an extra incentive. These benefits explain why most financial advisors recommend that after consumers have set aside money for emergencies they should "max out" on their 401(k)s. You also may want to consider IRAs and annuities. (See Terms of Retirement.)

Remember, too, that Congress occasionally changes the tax laws. When that happens, existing savings programs could become more or less attractive than in the past, or new types of accounts could emerge.

4. Not diversifying enough. Putting all your (nest) eggs in one basket can be a problem if the approach you take doesn't perform well or actually loses money. Consider a mix of savings and investments- certificates of deposit, individual stocks, an assortment of mutual funds, and so on- that in combination might perform reasonably well under any economic or market conditions.

At the same time, don't choose so many different accounts or investments that it becomes hard for you to monitor how well they're doing- even if you have someone else managing your portfolio.

You might also consider buying a home, which can be a place to live (now or when you retire) or an investment (to sell, rent out or borrow against).

5. Being too conservative. It's OK to be cautious. As the saying goes, no investment is a good investment if you can't sleep at night because of it. But if you're too cautious- say, putting little or no money into stocks or mutual funds during your early working years- you might miss out on higher returns that historically have beaten other investment options.

If you've got 10 or more years before you retire, your investments should have enough time to ride out fluctuations in the market and make up for lost ground.

6. Not doing your homework. A wrong move can cost you hundreds or thousands of dollars in taxes, fees, penalties or bad investments. Learn as much as you can about planning and saving for retirement. A good place to start is with free books and pamphlets available from the public library, associations and unions you belong to, your employer's personnel department, and even the federal government.

Talk to financial professionals you know and trust- perhaps your banker, broker, financial planner, attorney, accountant or insurance agent. Ask for a clear explanation of the pros, cons and costs of what they recommend, and do some comparison-shopping before you make a final decision. Try to do business with people who are reputable and ethical- the ones who will put your best interests above all else.

7. Not checking up on your retirement money. Take a look at your savings and investments at least every three months, to make sure they're achieving your goals. Review your overall strategy at least every year, to make sure it still makes sense.

If applicable, every four or five years get a free copy of your "Personal Earnings and Benefit Estimate Statement" from the Social Security Administration. This report shows your earnings over the years and an estimate of the Social Security benefits you can expect to receive upon retirement. Among the reasons to keep an eye on your Social Security and other retirement records: even a simple clerical or computer error can deprive you of money due you.

Also get information from current and former employers about your pension money, and try to resolve any problems as soon as possible. A former employer can move, merge, change names or go out of business, so it's important to you (and your heirs) that you keep good pension records. For guidance, including an explanation of your pension rights and tips for protecting your pension from mismanagement, contact the Pension and Welfare Benefits Administration listed on the next page.

8. Falling for retirement rip-offs. If you get a call, letter or visit from someone peddling financial products with features that seem too good to be true, trust your instincts. There are many scams designed to trick consumers- especially elderly people- into giving up cash, checks, credit card numbers or other valuables for little or nothing in return.

Common cons involve promising fantastic returns on investments that turn out to be fraud; outrageous fees for mortgages; exaggerating or lying about the benefits of certain trusts (especially "living trusts") just to make a sale or get personal financial information; "churning" of investments (frequent buying and selling to pile up fees and commissions); and inappropriate, high-cost insurance products.

If you think you've been approached by a con artist or you've been victimized, immediately contact the National Fraud Information Center (phone: 800-876-7060, Internet: www.fraud.org). This project of the National Consumers League in Washington reports suspected frauds to the appropriate law enforcement agencies.

9. Believing that an investment product you buy from a bank is FDIC-insured. The FDIC and other regulators require that banks and thrifts selling investment products (such as stocks, bonds, mutual funds and annuities) inform consumers that these are not deposit accounts protected against loss by the FDIC (including loss of principal due to market fluctuations). Despite our efforts, some institutions fail to properly disclose this information and some consumers fail to understand their risks.

If you'd like a copy of "Consumer Facts about Investments," a new FDIC brochure describing the differences between insured deposits and uninsured investments, contact your financial institution or our Public Information Center (listed on Page 3). If you have a specific question or complaint you'd like addressed, contact our Division of Compliance and Consumer Affairs (see Page 15).

10. Exceeding the $100,000 insurance limit on deposits. Some workers can direct their employer to deposit their 401(k) funds into the same FDIC-insured bank or thrift where they've got IRA or Keogh retirement accounts. But under a law that became effective in 1993, a person's 401(k) funds, in certain situations, are added to any IRA or Keogh accounts at the same institution and insured up to $100,000 in total. Hugh Eagleton, chief of the insurance unit in the FDIC's Division of Compliance and Consumer Affairs, says the people most likely to run into a problem are those near or in retirement who have concentrated their retirement money in one bank or in two institutions that later merge.

Joseph DiNuzzo, an FDIC attorney in the Washington headquarters, says that if you find that your retirement funds would exceed the $100,000 insurance limit "you should consider putting the money into more than one institution." And if you have a question about your insurance coverage, contact our insurance specialists.

Final Thoughts

Chances are good that you could live 25 years or more after your last paycheck- years when expenses and inflation can take large chunks out of your retirement funds. We hope we've given you new incentives and new ideas for saving and investing wisely for your golden years. We also hope you find useful our "to do" list for various stages of your retirement planning (see Page 4) and our lists of additional resources on these last two pages. Finally, we wish you good health and financial prosperity, so that your retirement is as it should be- dynamic, enjoyable and worry-free.