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3 Retirement Mistakes You'll Come to Regret

Maurie Backman, The Motley Fool

On the road to retirement, countless seniors encounter their share of hiccups. So if you're still relatively young and have many working years ahead of you, it pays to learn from others' mistakes to avoid falling victim to them yourself. Here are just a few blunders that tend to plague retirees -- and how to dodge them.

1. Not saving sooner

It's estimated that more than 40% of Gen Xers and baby boomers -- workers in their late 30s all the way through to their early 70s -- have no retirement savings. At all. And that's a frightening prospect when you consider how little time some of these same workers have to catch up.

Serious senior man seated in a dark room, looking toward a window

IMAGE SOURCE: GETTY IMAGES.

The problem with delaying your retirement savings efforts is that you limit your ability to benefit from the power of compounding. See, when you start saving early on, you get to invest your savings so that it grows over time. But the shorter an investment window you give yourself, the less growth you'll achieve. The following table further illustrates this point:

If You Start Saving $500 a Month at Age:

Here's What You'll Have by Age 70 (Assumes an 8% Average Annual Return):

25

$2.3 million

30

$1.6 million

35

$1 million

40

$680,000

45

$439,000

50

$275,000

55

$163,000

Data source: author.

Keep in mind that in the first scenario, you're coming away with $2.3 million by putting in just $270,000 of your own money over a 45-year period. But it's that sizable window that allows for what's basically a $2 million gain. As we work our way down the table, however, we can see that those gains get smaller and smaller, until they're far less impressive. Case in point: If you wait until age 55 to start saving, you'll have a modest $73,000 gain over a 15-year period. Is that better than nothing? Sure. But it's nowhere close to the $2 million we just saw.

The takeaway? Don't wait to start setting funds aside for the future. Currently, you can contribute up to $18,500 a year to a 401(k) and $5,500 a year to an IRA if you're under 50. If you're 50 or older, these limits increase to $24,500 and $6,500, respectively. Even if you can't max out your contributions, do your best -- and the sooner, the better.

2. Investing too conservatively

In our example, we saw how monthly contributions of $500 could grow into a much larger sum over time. But those calculations factored in an average yearly 8% return, which we need to talk about for a minute.

That 8% benchmark is actually quite doable if you load up on stocks in your portfolio, which anyone who's at least seven years away from retirement would be wise to do. Go heavy on stocks, and you're likely to see that average annual 8% return even if the market takes multiple dips over your investment window (keeping in mind that 8% is a bit below the market's historical average). On the other hand, if you stay away from stocks for fear of losing money, you're going to come out with a lot less wealth.

It's estimated that 60% of Americans invest too conservatively for retirement by focusing on avoiding losses rather than maximizing gains. But it's that very attitude -- or fear -- that causes countless seniors to fall short in retirement.

Imagine that instead of generating an average annual 8% return on your investments, you play it safe and snag a 4% return instead. Here's what the above numbers would look like:

If You Start Saving $500 a Month at Age:

Here's What You'll Have by Age 70 (Assumes a 4% Average Annual Return):

25

$726,000

30

$570,000

35

$442,000

40

$337,000

45

$250,000

50

$179,000

55

$120,000

Data source: author.

Bet you thought your returns would simply get cut in half, right? Wrong. Check out the line at the very top, which shows our previous $2.3 million slashed all the way down to $726,000. And there lies the danger of avoiding stocks in your portfolio. Consider yourself warned.

3. Going all in

Countless workers look forward to retirement so much that they take the plunge without giving it proper thought. Unfortunately, many seniors who go this route wind up dissatisfied later on, and the reasons run the gamut from financial worries to all-out boredom. That's why it pays to ease your way into retirement rather than go from 40 hours or more of work per week to nothing at all. If you convince your employer to agree to a partial retirement, or leave your career but start a new one that lets you work part-time, you'll get the benefit of not only a paycheck, but a means of occupying your time.

And the latter is more crucial than you'd think. Studies have shown that retirement increases the likelihood of suffering from clinical depression by a frightening 40%, so if your health is relatively strong, it pays to keep working in some capacity during the early stages of retirement, and take it from there.

The benefit of being young(ish) is getting to learn from those who are older. Whether you're nearing the end of your career or are nowhere close, make sure to avoid the above mistakes that have impacted more seniors than you could possibly count. Your retirement depends on it.

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