From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(July 1, 2007) -- Effective retirement planning is often equated with making good decisions, but avoiding common mistakes can be equally important, reports the Virginia Society of CPAs. Just one or two things done incorrectly can set you back in achieving your retirement dreams. Here are several retirement savings mistakes you should avoid.

1. Not Starting Early Enough

Too many people wait too long to start saving for retirement. Investing even a small amount early on can make a big difference thanks to the power of compounding.

2. Poor Asset Allocation

Asset allocation is the way in which you divide your money across various classes of investments including stocks, bonds, and cash equivalents. In allocating your investments, you don’t want to be too aggressive — but being too cautious can be just as foolhardy. By investing too conservatively, you deprive yourself of the growth you need to build your retirement nest egg and stay ahead of inflation. The goal is to strike the right balance in allocating your retirement dollars on an ongoing basis and to adjust your allocation appropriately as you get closer to retirement.

3. Underestimating Your Life Expectancy

It’s difficult to predict life expectancy, but when determining how much money will be needed for retirement, many people tend to underestimate how long they might live. To be on the safe side, CPAs generally recommend that you calculate your financial needs based on the assumption that either you or your spouse will live into your nineties.

4. Misjudging Your Ability to Continue Working

Working in retirement is a fulfilling way to stay active and generate extra retirement income. But, that presumes that both you and the job market for seniors remain healthy. While many baby boomers plan to work well past their normal retirement age, risks such as illness, disability, or job loss may prevent this. For this reason, it’s better to plan as if your working years won’t continue indefinitely.

5. Not Rolling Over Your Retirement Savings When You Change Jobs

According to a recent study, close to 45 percent of people who change jobs withdraw money from their retirement plans and spend it. This is never a good idea. When you change jobs, you can request that your employer make a direct rollover of your account to another qualified employer plan or IRA. By doing so, you will avoid paying any income tax or penalty. If you choose to have the distribution made to you, 20 percent tax will be withheld; however, it is still possible to make a tax-free rollover within 60 days. To roll over 100 percent of the distribution, you will have to use other funds to replace the 20 percent withheld. If not, the 20 percent balance will be taxable. If you receive a lump sum and do not make a rollover, the taxable portion of the distribution will be subject to income tax, and if you are below age 59½, you generally will also be subject to a 10 percent penalty.

6. Borrowing Against Your Retirement Fund

When you borrow money from your 401(k) plan, that money is no longer working for you. In addition, you are required to pay back the amount you borrowed, generally within five years or the loan will be considered a premature distribution, subject to penalties.

7. Focusing On Your Nest Egg Too Much

It’s important to check from time to time to see that your asset allocation remains appropriate for your retirement goals – but don’t get carried away worrying about month-to-month fluctuations within your portfolio. For the most part, these movements are a natural part of economic cycles. And while tending your nest egg is critical, it’s also important to give some thought to how you’re going to spend your time in retirement. Doing so will make the transition into retirement that much smoother.

8. Not Consulting With a CPA

If you’re concerned about avoiding retirement savings mistakes, consult a CPA. He or she can help you to avoid the common pitfalls that can jeopardize your retirement security.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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