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Wednesday, 29 June 2011

How Long Will Our Retirement Savings Last?

by Walter Updegrave

Should we save our money in early retirement or spend some of it on things like travel that we may not be able to do later on due to health and age? -- Diane Goldstein, West Windsor, N.J.

Funny, how our priorities change. During your career, the focus is on saving enough. Once you retire, your attentions shift to spending enough (but not too much).

It's a delicate trade-off. Live too frugally in the early years of retirement and later in life you could end up with a big pile of savings, as well as a big pile of regrets that you didn't enjoy yourself more when you were younger. Loosen the purse strings too much early on, and you might have to stint in your dotage.

If I could give you a formula for pulling off this balancing act, I would. But there isn't one. I can, however, suggest ways to have fun now without unduly jeopardizing your financial security later on.

Start by recognizing that your ability to engage in more vigorous pursuits can diminish quite a bit with age. Indeed, some financial planners talk about three stages of retirement: the go-go years, up to age 75, when you may travel extensively and volunteer; the slow-go years, 75 to 85, when you scale back on such activities; and the no-go years, when you're less active due to age and health. To every extent possible, you want to live large during that go-go phase.

Of course, the more you spend early on, the greater the risk is that you will run out of money too soon. Start with an initial draw of 4% of your savings that you boost annually for inflation, and the odds of your dough lasting 30 years are about 80%. Up that draw to 6%, and the odds drop to about 25%.

You may, however, be able to increase your spending for trips and entertainment in the initial stage of retirement without unduly jeopardizing your financial security if you're willing to pare back on spending later on -- or accept a somewhat higher risk of running out of money.

As the chart above shows, however, if you spend more freely and your savings stash gets whacked by a market setback, you may have to make a painful adjustment to your spending or face a substantial risk of depleting your savings.

Another way to go is to cover all or nearly all of your absolutely essential expenditures with guaranteed income. If Social Security and pensions don't generate enough income to do that, you could devote a portion of your savings to an immediate annuity.

You can feel more confident about tapping your savings for splurges knowing that you've got the basics covered (although you'll still want to leave a reserve for health care expenses, which become a major wild card in that no-go phase).

Ultimately, the key is being flexible and taking your spending cues from the size of your nest egg. If surging markets are boosting its value, you may be able to indulge yourself. If you've just come off a market downturn or string of lousy returns, foregoing an inflation increase or scaling back your withdrawals a bit will give your stash a better chance to recover.

Plugging your age, savings balance and annual spending into the T. Rowe Price's Retirement Income Calculator will give an estimate of the chances your portfolio will last to age 95. You can then reduce outlays if the odds are too low for your liking -- or take another trip if they're within your comfort zone.

Monday, 27 June 2011

A 6-Step Guide to Figuring Out When You Can Afford to Retire

by Steve Vernon

How do you know when you can afford to retire? That's the big question most people ask as they approach their retirement years. The best answer: when you've done the math and the numbers work out. The trouble is, most people just guess at how much money they need to retire -- and they usually guess way too low.

It's time to crunch the numbers to see if your retirement income will cover your living expenses for the rest of your life, no matter how long you live and no matter what happens in the economy. It's a tall order, but nevertheless, that's what you need to do.

Let's start by planning how you'll balance the magic formula for retirement security:

I > E

or

Income > Expenses

To get started, you'll need to choose the age at which you want to retire, taking into account your life expectancy and what you hope to do in retirement. You'll also need to consider your spouse's life expectancy, if you're married.

Now it's time to see how your projected income measures up to your projected expenses at your desired retirement age. After you do the math, if your retirement income falls below your expenses, you'll need to make some adjustments and keep crunching the numbers until you've determined when you can really afford to retire. You may need the assistance of a professional financial advisor to get it all figured out.

The first three steps in estimating your retirement income involve adding up three things -- your retirement income from Social Security; the income you generate from your IRAs, 401(k), and other retirement savings; and your pension income, if you've earned this type of benefit. Estimating your living expenses is the fourth step. Make sure you've provided for your spouse or partner after you're gone -- that's the fifth step. And the sixth and final step involves the inevitable bargaining and negotiating with yourself to make the numbers work. Most likely that will involve continuing to work and/or taking a close look at your living expenses to see how you can shave them in order to be able to afford to retire.

When estimating your retirement income and expenses, you might want to use an online retirement calculator. Alternatively, you may want to use your own spreadsheet or work with a professional retirement planner.

First, let's address each source of income, starting with Social Security:

Step 1: Estimate Social Security Income

You'll need to decide the age you want to start receiving Social Security benefits and then estimate the amount of your monthly income at that age. If you're married, you and your spouse will need to decide when to start your spouse's income and estimate how much it will be as well.

You might decide to start your Social Security income and/or your spouse's income at a date later than your desired retirement age. If you decide to do this, you'll need other sources of income to replace the Social Security benefits you're deferring. You might need to work part time to fill this gap or draw additional amounts from your retirement savings.

Now it's time to determine how much income you'll generate from your IRAs, 401(k), and other retirement savings.

Step 2: Determine Income from Your Retirement Savings

You'll need to estimate the amount of retirement income your IRAs, 401(k), and other retirement savings vehicles will generate for you. To do this, you'll first have to determine the total amount of your retirement savings from which you'll be generating retirement income.

Start with the inventory of your retirement savings from all sources. Then you'll need to make some adjustments:

• If you anticipate that you'll sell your house and realize a profit, and you want to use these gains to generate retirement income, add to your retirement savings the gain you expect to realize, after considering taxes and sales expenses.

• Subtract from your retirement savings any investment accounts you'll dedicate to paying for long-term care expenses.

• Subtract from your retirement savings the estimated total amounts you need to make up for any Social Security income that you defer, as described in the previous step.

• Subtract any amounts that you plan to set aside for unforeseen emergencies.

• If you expect a lump sum payment from a pension plan, add this amount to your retirement savings.

• Add any amounts that you expect to save between now and your desired retirement age.

• Add any expected growth in your investments that you expect between now and your desired retirement age. If your desired retirement age is less than five years from now, I prefer to assume you won't realize any future growth. This is just to be safe, given the current low interest rates and the volatility in stock investments. If you want to assume you'll have future investment earnings, however, make sure the growth rate you use is realistic given the types of investments you use. And use more than one assumed rate of return to see the range of possibilities -- a pessimistic rate, an expected rate, and an optimistic rate.

Now you've got the total amount of retirement savings that you'll use to generate the retirement income you'll need to cover your living expenses.

Next, you'll need to select one of three methods -- or a combination of the methods -- to generate lifetime income from retirement savings. Once you've done this, estimate how much income you'll receive under the method or methods that make sense for you. The amount of retirement income your savings can generate will vary widely, depending on the method you use.

This points to a common flaw with most online retirement planning calculators: They won't let you specify the method you want to use to generate retirement income from retirement savings. In fact, many calculators choose the method for you or assume you'll draw as much as needed to meet your living expenses.

Here's one way around this flaw: Many calculators let you input "other" sources of retirement income. In this case, you can estimate the amount of income you expect to receive from your retirement savings and then input this amount into the "other" category.

Once you've run the numbers, if you find you don't generate the amount of income you need, you might want to revisit your choice of method for generating retirement income, and then do the math again.

Next we'll determine how much you'll get from traditional pensions. You can skip this step if you know you haven't earned a pension benefit from your employer and move on to step four, estimating your retirement living expenses.

Step 3: Calculate Your Income From Traditional Pensions

If you've participated in a traditional pension plan, you'll want to get estimates of your monthly income at your desired retirement date. You can do this either through an online pension estimator provided by your plan's administrator, or by asking your HR department.

If you're married or have a life partner, make sure you get estimates for a joint and survivor annuity. I prefer 100 percent, 75 percent, or 66-2/3 percent survivor annuities, which continue these percentages of your initial retirement income to your spouse after your death. I would probably avoid 50 percent joint and survivor annuities, simply because the living expenses for one person are usually much more than 50 percent of the living expenses for two people.

You might be eligible for a lump sum payment instead of a lifetime monthly income. Normally I prefer drawing a monthly retirement income, since you don't know how long you'll live. If you take the lump sum, then you'll need to add the lump sum to your total retirement savings when determining how to generate retirement income, as discussed in the previous step.

Now that you've estimated your three sources of retirement income, you're ready to estimate your living expenses.

Step 4. Estimate Your Retirement Living Expenses

You'll want to add up all your retirement living expenses -- your regular monthly living expenses, plus any expenses you don't pay on a monthly basis, such as insurance premiums, taxes, and gifts. Include your housing expenses, your costs for medical insurance premiums and out-of-pocket expenses, and any premiums for long term care insurance.

It's inevitable that your living expenses will change throughout your retirement. For example, at some point you might pay off the mortgage on your house. And your medical expenses will be different before and after age 65, the eligibility age for Medicare.

Some people also think they'll spend more money in their early years of retirement, when they're active and more likely to travel. That could be, but your living expenses could also increase in your later years, as you incur more costs for medical and long term care.

If you feel that your living expenses might change significantly during your retirement, you might want to factor that into your retirement planning. Some retirement planning calculators let you estimate how your expenses will change in retirement, or they might allow you to separately identify required living expenses vs. discretionary expenses.

And of course, you can expect that many of your living costs will increase for inflation. The best way to address inflation is to make sure your sources of retirement income increase for inflation as well. Social Security is already indexed for inflation, which is one important reason you should maximize your Social Security income. In addition, I recommend that you set up the income you'll receive from your retirement savings so this income will increase for inflation as well.

Most traditional pensions aren't increased for inflation; if you'll have significant income from a fixed pension, one way to address inflation is to spend just 75 percent of your pension income during your first year of retirement. Then invest the remainder in a special inflation reserve account. In the second year, increase the amount you spend from your pension by two to three percent to account for inflation, and invest the remainder in your inflation account. Continue doing this until you're spending your entire pension; then each year thereafter, start drawing from your inflation reserve to make up for inflation.

Managing your living expenses is the most common technique people use to be able to retire. This is one way to make adjustments in your situation to make the numbers work. The bottom line: You should focus on buying only what you truly need and what truly makes you happy.

Now it's time to consider your spouse or partner in your planning. You can skip this step if this doesn't apply to you.

Step 5: Take Your Spouse or Partner Into Account

If you're married or in a serious commitment, you'll need to consider your spouse or partner in your retirement planning. Married women can expect to have a period of widowhood of 5-10 years at the end of their lives, since men tend to marry women who are a few years younger and women typically outlive men by a few years. It's critical that you consider this inevitable situation when planning for retirement.

All the decisions and calculations that you made in the previous steps will be impacted by the steps you take when considering your spouse or partner, such as:

• Where you'll live and what you hope to do when you're retired
• When to start Social Security
• How to use your retirement savings to generate retirement income
• The form of payment you elect for a traditional pension, if that applies to you
• Your strategy to address long term care expenses
• Your estimated living expenses, including housing and medical expenses

It's best to involve your spouse or partner in your planning, so that he or she can provide input and be familiar with the plans. And when it comes to planning, two heads are better than one!

Finally, you're ready for the inevitable: Bargaining with yourself to make the numbers work.

Step 6: How to Make the Numbers Work

It's often the case that the first time you go through these steps, your income won't quite cover your projected expenses, so you'll need to make some adjustments and do the math again. Here are some common strategies -- while easier said than done, these are nevertheless things you can control:

• Retire later
• Work part time
• Fine-tune your living expenses
• Share housing to dramatically reduce your living expenses
• Move to a cheaper part of the country
• Use a different method of generating retirement income from your retirement savings

All of the above is a lot of work, but it's well worth the effort. The people who do best in retirement are those who planned for it. Remember, you're planning for a period of your life that can last 20, 30, even 40 years. It's inevitable that it will take a lot of time to do your homework and do the math to come up with a plan that works for you.

Good luck!

Friday, 24 June 2011

Freedom More Important to Well-Being Than Money

by Laura Rowley

When Bill Douglass and his wife found out they were expecting their first child in 2009, he did something counterintuitive: He quit his job. Douglass left a secure position in corporate communications in New York City to launch his own firm in Stamford, Connecticut.

"I knew I wanted to spend a lot of time with our daughter, especially in her formative years," says Douglass, whose own father traveled frequently on business. "Knowing she was coming was an inspiration to strike out on my own and work from home. My first year in business I only had one client, but because we had been good savers, that gave me the freedom to be able to start my firm."

A new study suggests that from a happiness perspective, Douglass was smart to choose autonomy over money. Psychologists Ronald Fischer and Diana Boer of Victoria University of Wellington in New Zealand found that on a national level, individualism and autonomy are more important to well-being than money. The study appears in the Journal of Personality and Social Psychology.

"Countries scoring high in autonomy had less stress, less burnout, less mental health problems and so on," says Fischer. "We were surprised by the very strong, consistent effect of autonomy. There's lots of evidence that wealth would be a predictor of well-being in large population samples, so we were surprised to find that once we account for national indicators of autonomy and individualism, money isn't as important anymore."

In other words, wealth may influence well-being only through its effect on freedom: More money gives you more control over your life and your choices, which makes you happier.

Fischer and Boer did a meta-analysis, statistically combining the results of multiple surveys done in 63 countries across more than 420,000 people over four decades. They created a well-being index for each country by combining three different surveys measuring psychological health, anxiety and burnout/stress.

"Those three instruments pick up really well how people are doing in their daily lives, and they have been used a lot in different studies around the world, so we had good database for analysis," Fischer says. The researchers then correlated their well-being index with gross national income per capita and autonomy.

To measure autonomy, the researchers used several surveys, including political scientist Ron Ingelhart's index of values, which asks people to choose among important goals, ranging from economic and physical security to personal values such as self-expression. The researchers also used social psychologist Geert Hofstede's individualism index, which measures whether a culture favors individualism (everyone looks out for himself) or collectivism (strong integration into a particular social group).

Finally, they incorporated an index by social psychologist Shalom Schwartz that determines if a society favors autonomy (broadmindedness, pursuit of ideas, curiosity, creative work, pleasure and enjoyment of life) or embeddedness (respect for social order, obedience and tradition).

Kennon Sheldon, a psychologist at the University of Missouri, found similar results among individuals in a study he conducted a decade ago. It asked people to describe their most satisfying experience in the past week, month and year. "It was never 'I got a bunch of money,'" he says. "It was 'doing something meaningful that I chose to do and doing well at it.' So in that case, autonomy outperformed making money or enjoying luxuries.

"Autonomy is really about self-organization and self-regulation, and kind of goes to the heart of what a living system is," Sheldon continues. "Are you being buffeted by what's surrounding you or do you have internal guidance? To the extent you have the latter, you would be doing interesting things, performing without pressure or resentment — and you're going to grow as a person to a greater extent."

That's what California publicist Aimee Cebulski has found. Fourteen years ago she left her full-time job to take a project on a six-month contract, and has freelanced ever since. Combining frugality with the ability to structure her time, Cebulski has traveled to 40 countries over the last decade.

"I'm in a unique position — I'm not married, I don't have children, so I have less overhead and financial responsibility and more ability to choose my day-to-day life," she says. "My boyfriend works for himself as well, and the freedom we enjoy is worth far more than money. You can never get the time back." She'll occasionally start work at 5 a.m. so she can spend the afternoon with her nieces at a local attraction like Legoland.

Cebulski, 39, is now working on a project to travel to 40 countries and interview and photograph 40 different women who are on the verge of turning 40 years old. "I want to take a snapshot in time and see how different 40 can be around the world," she says.

The study also found that too much money and individualism can have a negative impact. When countries have an abundance of wealth and autonomy simultaneously, they don't score as high as expected on well-being.

Case in point: the U.S. We're one of the richest countries, but Americans were found to have a higher rate of mental health problems. Excessive individualism may reduce well-being through weak social ties, increased negative social attitudes and materialism, Fischer notes. Too much choice tends to produce stress for individuals, but these are findings that need further research, he says.

Although the study looks at well-being on the national level, individuals can apply its lessons. "Based on the findings, people should go for balance," says Fischer. "It is important for people to earn enough money to satisfy daily needs, but then focus on things that make them happy in their lives. This is autonomy: looking for ways to use their creativity; being curious about stuff and broadening their minds; and finding activities that give them pleasure. It's not important to get a job that gives you another $5,000 a year if that means you can't actually enjoy your loved ones or some interesting hobby you could pursue."

Douglass, whose daughter turns one on July 4, agrees. "To me money equates with freedom," he says. "It's just absolutely priceless to have the freedom to go downstairs and play with my daughter for a while and not be pinned down to an office. I wouldn't trade this last year for anything."

Laura is author of the book "Money & Happiness" and blog of the same name. Read more about her here.

Tuesday, 21 June 2011

The Banker: You know you’re sick of banking when…

The Banker

1) The more important you are at your bank, the higher probability your urgent emails or calls always “just happen” to arrive on your iPhone or BlackBerry during someone else's meeting.

2) Your boss insists on using his iPhone/BlackBerry, even when his landline phone is right there at his desk

3) People show off their work-sponsored iPads in meetings and then demand to know why there are no hardcopy meeting packs available.

4) Everyone who is someone wears French cuffs and incessantly fiddles with them just in case you didn't notice them.

5) Senior managers use silly exotic terms like “perfect storm”, “black swan”, “fat tail”, and “green shoots” to make their work sound exciting.

6) Senior managers talk about cost control and “jaws” but most of their audience think that’s a movie.

7) Senior managers issue global circulars emphasising the need to cut costs by minimising travel – and then they convene a mandatory in-person conference at a central location for all senior executives to discuss it further.

8) Your bonus is inversely proportional to the firm's good performance.

9) Senior management bonuses’ are inversely proportional to the firm's bad performance.

10) Your firm’s slogan is either humanly impossible (“never sleep”); a statement of the obvious (unless you’re E.T. it’s pretty hard not to "live in your world"); or a tautology ("living, breathing Asia" – I haven't yet met anyone who can live without breathing).

Saturday, 18 June 2011

Your Well-Paid, Middle-Class Job Is in Danger

by Ruth Mantell

Some highly-paid workers may find they need to switch careers.

The job market is changing, and it's not just manufacturing jobs that are disappearing. Even some highly-paid workers may find themselves needing to re-tool their skills in the years ahead.

The ongoing movement of jobs to countries where labor is cheaper, plus the development of new technologies, may mean fewer opportunities for some well-paid positions in the U.S. over the next decade, said Larry Katz, an economist at Harvard University.

"Employment growth has stopped, or even declined, among many middle-class jobs that are high wage" and don't require a college degree, Katz said.

"A lot of traditional middle-class, upper-middle-class jobs have been disappearing. If you look at general managers and middle-management jobs, those are ones that have been in decline and will decline further," he said.

Workers making about $40,000 to $80,000 a year constitute the bulk of labor costs for many companies, and these workers may be on the chopping block, said Jeffrey Joerres, chief executive of ManpowerGroup, a Milwaukee-based staffing services firm.

"That's your middle class," Joerres said. "Companies are finding ways to reduce the number of people in those areas, and change the jobs to make them more simple, to reduce the skill that is required."

Changes in the Health-Care Field

Kevin Hallock, director of the Institute for Compensation Studies at Cornell University, cited radiologists as an example of a well-paid worker that could be hit by technology and cheap global labor.

"I suspect that we will see fewer radiologists in the U.S. than we have in the past since I understand there is little reason for a radiologist to be in the same place as a patient," Hallock said. "A radiologist can read a Terre Haute X-ray as easily in India as she can in Indiana."

However, fewer opportunities do not necessarily translate into the disappearance of an entire field.

"A lot of medical diagnostic work will be done overseas. You can have the initial diagnostic done elsewhere, and have a domestic supervising physician," said David Autor, an economist at Massachusetts Institute of Technology.

"Medical costs are a huge issue, and there's enormous incentive to find ways to reduce these costs. The internationalization of medical services will be one of the important ways that costs will potentially be slowed," he said.

Software can also cut down on workers needed to sort through paperwork, such as legal documents, Autor said.

"You digitize all of those documents, and a piece of software reads them and catalogs them," Autor said. "There is a lot of legal work that is essentially increasingly subject to automation, and that will affect the opportunity set for lawyers."

Computer programming is also becoming a commodity, Katz said.

"What used to be good programming jobs, or routine legal work, these are things that are easily broken into parts, and done in other places," Katz said.

Good News, for Some

However, not all is doom and gloom. Among the 20 fastest growing occupations from the U.S. Labor Department's employment projections for 2008 to 2018, 11 earn at least $10,000 more than the national annual median wage of $32,390 in May of 2008.

Examples of these workers are biomedical engineers, network systems and data communications analysts, and financial examiners.

Meanwhile, more than half of the 20 occupations with the fastest projected decline -- think sewing machine operators, photographic processing machine operators and file clerks -- were below the national median wage. Read the Labor Department's report.

Here are the 10 fastest growing occupations from 2008 to 2018, and their median wages, according to the Labor Department:

• Biomedical engineers, median wages of $77,400

• Network systems and data communications analysts, $71,100

• Home health aides, $20,460

• Personal and home care aides, $19,180

• Financial examiners, $70,930

• Medical scientists, except epidemiologists, $72,590

• Physician assistants, $81,230

• Skin care specialists, $28,730

• Biochemists and biophysicists, $82,840

• Athletic trainers, $39,640

Here are the 10 fastest declining occupations:

• Textile bleaching and dyeing machine operators and tenders, $23,680

• Textile winding, twisting, and drawing out machine setters, operators, and tenders, $23,970

• Textile knitting and weaving machine setters, operators, and tenders, $25,400

• Shoe machine operators and tenders, $25,090

• Extruding and forming machine setters, operators, and tenders, synthetic and glass fibers, $31,160

• Sewing machine operators, $19,870

• Semiconductor processors, $32,230

• Textile cutting machine setters, operators, and tenders, $22,620

• Postal Service mail sorters, processors, and processing machine operators, $50,020

• Fabric menders, except garment, $28,470

Adaptation Is Key

Workers with diminishing prospects will need to evolve, experts said.

"Lots of people can transform themselves," Katz said. "People with a good set of flexible skills will be able to adapt. Creativity and flexibility will continue to be greatly valued. People with a certain specific set of vocational skills are going to have a tougher time without some new training."

While technology may replace some workers, it also creates opportunities to use new skills.

"Some types of engineers won't be doing the type of engineering they are doing now if someone comes up with a technology that makes what they do obsolete," Hallock said. "But they are likely to do something related."

To succeed, a worker should "be an active learner," Manpower's Joerres said.

"Taking on responsibility for invention and innovation gives you a better chance of remaining in a position than the person to your right or to your left," Joerres said.

Monday, 13 June 2011

5 Retirement Mistakes That Will Haunt You

"You'll regret it. Maybe not today, maybe not tomorrow, but soon and for the rest of your life."

Those words, spoken on a tarmac at the finale of the classic film "Casablanca," could be stretched from the intended affairs of the heart to how we plan for retirement.

There are financial decisions we make that seem a good idea at the time and retirement moves we make half-heartedly. When it comes to ensuring a lifetime of retirement income, bad decisions may not hurt immediately, but once the pain arrives it can last for decades.

Here are five retirement mistakes that will haunt you, and ways to avoid the haunting entirely:

1. Guesswork, Not Legwork

How much will you need to retire?

That straightforward question should be a starting point for people of all ages, at all stages of planning. A great number of people, however, do no more than guess at what they should save.

According to the Transamerica Center for Retirement Studies, a nonprofit organization funded by Transamerica Life Insurance, half of workers continue to guess at the amount of money they need to save to feel financially secure when they retire and a large number (44%) of American workers do not have a strategy to reach their retirement goals.

Of those who do have a strategy, only half have factored in health care costs and one-fifth have factored in long-term care insurance, making their estimates inadequate. A reduction or loss of Social Security benefits ranks third in greatest retirement fears.

As part of its research, Allianz Life asked a segment of baby boomers how much money they thought they would need to live on.

"The average number they came up with was $60,000," says Katie Libbe, vice president of Consumer Insights for Allianz Life. "Then we asked them to try to calculate what that means in terms of a portfolio that's going to deliver that for as long as they think they are going to be in retirement. They were at a loss in terms of what they would need. They said $500,000 when, if you just apply a 4% withdrawal to that portfolio, they would really need $1.5 million. They don't know how to do even this basic calculation. You can teach them about some of these individual tactical mistakes, but they can be off even in the strategic sense of how much money needs to be socked away."

Not only is there the danger of not ensuring the longevity of your savings; there is the temptation of being unreasonably aggressive with your portfolio to make up for maybe not saving as much as they should have.

Health care costs also need to be considered. According to research by Allianz Life, the average couple retiring at age 65 will spend approximately $285,000 in health care costs in retirement. As life expectancies continue to increase, baby boomers need to have a plan for covering some portion of managed care for an elderly parent as well as for themselves.

Health care costs, Libbe says, could "eat into a good chunk of their nondiscretionary dollars, which means fewer dollars available for all the fun things they want to do in retirement."

2. 'I'll Just Keep Working'

Most people assume they will retire at a certain age, and many look to salvage inadequate savings by working later into life.

But according to Limra, a global association of insurance and financial services companies, two in five people retire earlier than planned due to a number of factors, including layoffs or illness. For those assuming they will work part time in retirement, many can't due to circumstances beyond their control.

"We did some research recently where we found out that a lot more baby boomers are planning to work longer," Libbe says. "That's basically their backup plan for not having saved enough for retirement. The Limra statistic about two in five people retiring earlier than they expected just shows you can't count on working longer being your plan."

Making the prospect of retiring ahead of schedule all the more precarious is that 70% of respondents to the Transamerica Center survey agreed they could work until age 65 and still not have enough money saved to meet their retirement needs.

"Planning not to retire is simply not a viable retirement strategy," says Catherine Collinson, president of the center. "Planning to work past age 65 is an important opportunity to continue earning income, save more and help to alleviate a retirement savings shortfall; however, it's important that workers be proactive in setting a retirement savings goal, saving and investing for retirement, and having a backup plan if they are forced to retire sooner than expected."

3. Taking a Loan Against Your 401(k)

Close to one in 10 workers with qualified retirement plans from their employees took a loan out in the past 12 months, according to the Transamerica Center.

The center's 12th Annual Transamerica Retirement Survey, conducted among 4,080 American workers, found that the majority of those taking loans (42%) did so to pay off debt; 14% did so to buy a primary residence. Only 6% did so in response to medical bills and even fewer (3%) found it necessary for tuition expenses.

Though commonly viewed as "borrowing from yourself," those who fail to repay can be saddled with taxes and penalties. Borrowing against a retirement plan also reduces the ability of those funds to garner interest, a loss that will compound in perpetuity.

4. Not Taking Full Advantage of Benefits

Leaving money on the table will hurt you later in life.

According to the independent investment adviser Financial Engines, the recession hurt participant savings rates, with 39% of participants not saving enough to get their full employer match, up from 33% in 2008. Of participants under age 40, 47% failed to save enough to get the full employer match.

In tight economic times, it is understandable that households need to cut costs in many ways. But every dollar not added to your portfolio will miss out on the matching company funds and compound interest both will accrue for years to come.

5. Not Having a Tax Strategy

Many fail to consider the tax impact when withdrawing from their nest egg, Libbe says.

When in retirement, the objective changes from accumulation to converting investments into "tax-smart" income. A tax-efficient withdrawal plan can make a significant difference in how long your portfolio lasts. Retirees need to optimize taxable and tax-advantaged accounts to minimize tax-bracket impact and other income such as Social Security.

"You can actually make your retirement assets last longer if you know how to take distributions from them in retirement so that you are efficient with your taxes," Libbe says. "It is not easy for the average consumer to do, but there are financial advisers and software programs who can do exactly that. They can make sure you don't bump up into a new tax bracket and you are paying attention to required minimum distributions. It can be as simple or complex as you want to make it."

Avoiding the Pitfalls

The Transamerica Center for Retirement Studies recommends seven steps to help avoid these and other retirement mistakes that can have a life-long impact:

• Get the conversation going with friends and family. Just 9% of workers frequently discuss saving, investing and planning for retirement with family and friends.

• Formulate a plan and write it down. Only 10% of workers have written out their retirement strategy.

• Get educated. The majority of workers (71%) say they do not know as much as they should about retirement investing.

• Consider retirement benefits as part of your total compensation. Fifty-three percent of workers would select a job offer with a higher than expected salary but poor retirement benefits over one with excellent retirement benefits and minimum salary requirements.

• If your employer offers a plan, participate. And if your employer doesn't offer you a plan, ask for one. Just 71% of workers report being offered an employee-funded plan at work, while 92% say a plan is an important benefit. However, almost one-quarter of workers (22%) who are offered a plan at work do not participate.

• Make catch-up contributions. Just over half of workers (56 percent) are aware that people age 50 and older may be allowed to make catch-up contributions to their retirement plan.

• Have a backup plan in the event you are unable to work before your planned retirement. Only 19% of workers have a backup plan.

Why Loving Your Work Matters

If you have ever found yourself looking at your career and wishing you were on a path you felt more passionate and energized about, you may also be familiar with the little voice that says, "Work is a four-letter word. It's not meant to be enjoyed. Suck it up, buttercup." Inherent in that voice is the idea that wanting to love your work is somehow unreasonable and even frivolous.

But not only is loving your work not frivolous, it actually pays huge dividends in your life. And many of them aren't even work-related.

Let me start off with my definition of passion: "Passion is the energy that comes from bringing more of YOU into what you do." When what you are doing is aligned with who you are and what you're naturally drawn to, it's energizing. And not only is doing the work energizing, it also doesn't drain you like work that doesn't fit. So in a way, you get a double dose of energy, first from the energy you gain from doing the work, and second from the energy you're not losing.

Why is that important? Because your life is an interconnected system. When work leaves you feeling energized and engaged, that spills over into the rest of your life.

Here are five big ways that having energizing work benefits both your life and the world around you:

You have more energy to put back into your work

When your work drains and depletes you, you can't deliver your best work. You're starting out in a hole, and you have to put energy into just grinding things into gear. When you're doing what you love, that energy can go straight into doing the work. At the same time, you feel energized by what you're doing, so your tank is continually filled. That means you have much more energy to put into excelling. And in the long-term, that makes all the difference in the world.

You have more energy to put into relationships

When you don't enjoy your work, that follows you home. For example, you may feel frustrated and stuck, and that might be reflected as a short fuse with your loved ones. Or maybe you're just too tired when you come home to put the energy into the meaningful communication and connection that a good relationship needs. You might only feel enough energy to flop down on the couch and grab the TV remote.

When you feel energized by your day, that follows you home as well. In my work helping people discover careers they love, I have heard clients say repeatedly as they start to move towards something better, "My husband/wife/partner says I'm so much more enjoyable to be around now."

You have more energy to put into making a difference

It's hard to reach out and make a difference in the world when you're feeling drained. Feeling energized by your work means you have more energy to put into things that make the world a better place. That might be through formal efforts like volunteering, or less formalized things like spending quality time with your kids and giving them a great foundation to grow from. Not only that, you have more potential to leave the world a better place just by virtue of being happier. Don't believe me? Try spending a day smiling at people, even people you don't know. How do they respond? Most will smile back, often with pleasant surprise. In a very small way, you've just made the world better.

You have more energy to put into enjoying life

Finally, when you feel energized by what you do for work, you have more energy to put into enjoying life. You shift out of a monochromatic experience and into a multi-chromatic one. Not only do you have more energy to do fun things, you can also experience it more fully.

You have more energy to put into overcoming challenges

I'd love to promise you a trouble-free life if you would just pursue passion in your career, but you and I both know that would be ridiculous. You're going to hit roadblocks. You're going to feel bumps and bruises, maybe even the occasional two-by-four to the head. Dealing with those challenges takes work, and the more energy you have to put into them, the more effective you can be and the less likely you are to let them derail you.

Loving your work doesn't mean you won't ever feel drained and depleted. And it doesn't mean you will never have challenges in the other parts of your life described above. What it does mean is that you have more to put into everything you do. When things are good, you can enjoy them more completely. When things are challenging, you have more of a buffer between you and the edge.

Who wouldn't want that?

After years as a professional malcontent, Curt Rosengren discovered the power of passion. As speaker, author, and coach, Rosengren helps people create careers that energize and inspire them. His book, 101 Ways to Get Wild About, and his E-book, The Occupational Adventure Guide, offer people tools for turning dreams into reality. Rosengren's blog, The M.A.P. Maker, explores how to craft a life of meaning, abundance, and passion.

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