Steven and Chris

5 Ways You Could Ruin Your Retirement

Despite our best intentions, we might be making decisions that hurt our retirement savings. Personal finance expert Rubina Ahmed-Haq shares some common retirement planning mistakes to watch out for.

1. Cashing out early

You may feel like in your 20's you want to take money from your retirement to put towards the down payment for a house. Or in your 50's you think you have saved enough and you can afford to take money out. In both cases you'll end up paying penalties and lose any potential gain on that money (especially if you're in your 20's). This creates bad habits.

The best way to grow your retirement is to leave it alone for the long term, and let it grow slowly over time. Just keep reminding yourself: you can't use your retirement money until you retire -- no excuses!

2. Upsizing often

As soon as most people get financially comfortable, they start looking at ways they can upsize -- like looking at getting a bigger house, a new car, or a big-budget renovation. But these are just ways you can get financially uncomfortable again, because you're taking on more debt. This leaves you with few opportunities to save for your retirement.

3. Investing incorrectly

Being too conservative with your investments might be a bad idea. Young people can take a lot of risk in their investment portfolio. Have a plan for the first 10 years that you start saving, and then re-evaluate, and make a new plan for the next 10.

4. Having the wrong insurance

Be prepared for health care costs and other medical expenses to protect your retirement savings. Have a plan that covers expensive prescriptions in case you will need them, especially as you get older. It's in your late 40's or 50's that you should start asking about this kind of insurance.

5. Not doing the math -- or doing it incorrectly

The No. 1 way to sabotage your retirement is by not doing the math or underestimating your retirement costs.

Most people don't realize how expensive retirement is. You can't save $100 a month and expect to have a fantastic retirement. If you're only putting $1200 a year away, you're in for a rude surprise later. You need to put away at least 10 per cent of your annual income if you want to have the same sort of lifestyle when you retire.

For example, if you make $50,000 annually, you should put away $5,000 a year. Or use a retirement calculator to know exactly how much you should be saving each year.

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