Obstacles to Ideal Retirement - Part 1

Knowing what can derail your retirement planning gives you the ability to plan better. Life happens to us so often while we are busy planning for it, but being aware of the "what ifs" in life gives you heads up.

Many things can push you off course when you're planning for retirement. Storms take many forms in our lives. Let's work out way through some of the financial ones first.

Changing Jobs Frequently

The average American worker works for seven different employers during his or her career. An employer can require that you wait a year before you are eligible to contribute to the company's retirement plan such as a 401(k). Not being able to contribute to an employer's plan and missing out on the employer's potential matching funds will mean less in your retirement nest egg in the future. Be sure you check put using IRAs while you are waiting for the enrollment period to open up for you. Also make some noise as an employee and request that your employer revisit the policy of making employees wait before they can contribute to the plan.

Single of Newly Married

If you are single or newly married and are not ready to start your family, do some advance planning. Contribute the maximum to the plans available to you right now. Those dollars will have the advantage of long-term growth, and your money will be working for you even if you are not contributing anything while at home with the kids.

Loss of a job can certainly mess with your retirement planning especially if you didn't know it was coming. If you have been contributing to your plan and have a nest egg, it will be very tempting to take the money out of the plan. When you leave your employment. you are allowed to take your 401(k) with you. If it is over $5,000, your former employer has to give you the option of leaving it with plan; if it is under $5,000, you just might get a check in the mail from them.

Taking the Money and Running

Over 60 percent of workers take the money and run even though taxes are due, as is a 10 percent penalty if you are under age 59 1/2. Hopefully you have an emergency fund stashed away that will see you through this crisis, and you can keep your retirement nest egg growing.

If your 401(k) is worth $5,000 and you decide to take it, you won't have much left after taxes. Your former employer is required to withhold 20 percent of taxes before you ever see the check, and then come tax time, if you are in the 28 percent bracket, you will owe another 8 percent for taxes. If you live where there is a state income tax, that will be added to it as well, and then there is the 10 percent penalty if you are under age 59 1/2. So you could lose over 40 percent to taxes, leaving you just about $3,000 to spend.