At 60, Diane Fuchs knows a little bit about investing for retirement. The Washington, D.C.-based employee benefits attorney has a 401(k) plan, a mix of IRA accounts—and a good sense of discipline about protecting her retirement funds.

Yet six months ago, worried about a tumbling stock market, Fuchs anxiously considered selling off all the equities in her accounts and putting the money into safer securities. She figured she’d safeguard her savings from plummeting share prices, then get back in once the dust settled.

Fuchs is not alone. Planning for retirement is discouraging these days. Even people with stable jobs face swelling gas prices, utility bills, health insurance premiums, and other expenses that make extra cash for retirement elusive. With distractions like a turbulent stock market and a shaky economy, it’s easy to take your eye off the ball and forget your ultimate financial goals. Here is a look at five retirement planning mistakes you absolutely need to avoid.

Mistake No. 1: The biggest blunder is cutting back on contributions to a 401(k) plan, since most companies offer matching funds—the ultimate cash freebie. In general, 401(k) plans are set up so that the employer adds 50 cents to each dollar a worker contributes, typically up to 6 percent of the worker’s salary. That’s an immediate 50 percent return on investment. Yet nearly one quarter of American workers don’t contribute to their 401(k), according to the Profit Sharing/401k Council of America, a nonprofit association. And of those who do contribute, many don’t toss in enough to get the full company match.

If you are nearing retirement, don’t make the mistake of easing off your savings. It’s time to juice them up. Many older boomers didn’t save as much as they should have in the early days of their working lives. The cost of the kids’ braces, tennis lessons, and college tuition understandably took a toll on personal savings. The thought of contributing 10 percent of gross income, let alone 15 percent, was a pipe dream.

But it’s not too late. From age 57 to 65 is typically the peak earnings time for most people. “This is when you can do some extraordinary saving,” says financial planner Mary Malgoire, president of the Family Firm. “You’re finally freed up to focus on socking it away for retirement. It’s now or never.”

And the IRS will lend a hand. If you are 50 or older, you can make catch-up contributions to your workplace savings plan and IRA. This year, while most workers are eligible to defer up to $15,500 to a 401(k) plan, those eligible for catch-up contributions can toss in an extra $5,000. Employers are not required to provide for catch-up contributions, but most do. The same catch-up provisions apply to 403(b) plans, 457 plans, and SAR-SEP retirement accounts. You can also contribute an extra $1,000 to a traditional or Roth IRA. So, while younger savers can put $5,000 a year into an IRA, people 50 and older can save $6,000.

Mistake No. 2: Using your retirement money as a bank is a major no-no. Yes, it’s reassuring to know you can always borrow from your 401(k). But even when times are tight, that’s bound to be trouble. If you take a loan and then get laid off or bought out, you’ll probably have to pay back the loan right away. If you can’t repay the loan, it will be treated as an early withdrawal. That means you’ll owe income taxes, plus a 10 percent penalty.

Even if you do pay back the loan, it’s a bad idea to tap your retirement funds. After dipping into the account once, you’ve crossed a psychological line and might be more inclined to do it again. Plus, by withdrawing funds, you sacrifice compounding investment earnings.

Mistake No. 3: When you see your retirement account balances falling, it’s reasonable to want to avoid losses by reinvesting in safer bets, as Fuchs contemplated. Don’t. As gut-wrenching as it might be, it pays to hold your ground. “Managing your retirement money has nothing to do with predicting the markets,” says Susan Stewart, president of Charter Financial Group in Bethesda, Md. “Moving money from stocks into more stable investments like money funds or CDs to avoid losses and ride out the downturn assumes you have a special crystal ball.”

One danger, if you get out of equities, is that you’ll miss the upturn when markets turn around. That’s costly. “History tells us that timing the market this way doesn’t work and that you’d be a fool to even try doing it,” Stewart says. “So stop stressing out about it. Downturns do end, and if you stay in the market, you’ll be there when things turn around.”

Another problem with dashing for the cover of “safe” investments is that stocks still offer the surest shot at long-term growth, so conservative investing can take its toll eventually. There’s also the lost opportunity of sitting on the sidelines when stocks are cheaper than they used to be. Your 401(k) contributions buy more shares of stocks when prices are lower, so when the markets come back, you’ll see a bigger boost.

To forestall knee-jerk reactions when the market dives, allocate your portfolio among stocks—both domestic and international—bonds, and cash. “Set your mix,” says Stewart, “and stick with it when it’s hardest for you to do so—when the market has fallen for a few days or weeks.” Then rebalance annually.

If you’re getting close to retirement, or are already retired, the right asset allocation is more important than ever. Sagging markets, combined with pulling funds out for living expenses, can really wreak havoc on your portfolio. At age 65, it’s probably smart to put half your holdings in stocks or equity funds and the rest in cash and bonds, then slowly reduce equities to a third of your portfolio by the time you are in your 80s. “There is no magic number,” Stewart says. “You need to be comfortable with your risk level, but you still want the growth that stocks can offer over a 10- or 15-year period.”

Mistake No. 4: One fast way to undo all your good retirement planning and squash your future nest egg is cashing out your 401(k) balance when switching jobs or being ushered out the door with an early-retirement plan. Even if you don’t intend it to be a cash distribution, it might be considered one.

Chances are, when you leave your employer, you’ll want to transfer your accumulated retirement savings to aself-directed IRA that offers you more investment choices. But timing is important, and this is where it’s easy to get tripped up.

After you receive the funds from your employer plan, you have 60 days to complete the rollover to an IRA or other tax-deferred plan. If you don’t complete the rollover within the time allowed or receive a waiver or extension of the 60-day period from the IRS, the amount is considered ordinary income. That means you are required to include the amount as income on your tax return, where any taxable amounts will be taxed at your current ordinary income tax rate. Plus, if you had not reached age 59½ when the distribution occurred, you’ll face a 10 percent penalty on the withdrawal.

Mistake No. 5: This is an important error: not creating a post-retirement plan. As you approach retirement, you should know all your sources of income, ranging from pensions to investments to Social Security. Also, consider the amount of equity you have in your home. Then establish a plan for how you’ll spend those funds in retirement. In general, you’ll want to tap into your tax-deferred savings last.

Failing to plan for life’s nasty little surprises can torpedo your retirement plans, even if you’ve been saving faithfully for years. While it goes without saying that regular retirement contributions are critical, living well in your golden years also depends on far more than a healthy portfolio. “Saving is the heart of it,” says Gary Schatsky, a financial adviser in New York, “but you can’t ignore insurance, taxes, and debt management.”

Most corporate health plans, for example, cover you until age 65, when Medicare kicks in. Retire early (whether you want to or have no choice), and you’ll probably need to scout for an individual plan. Your most affordable option may carry a high deductible of $2,500 to $5,000 a year. So plan ahead. Another smart move is paying down your mortgage and slashing your credit card and other consumer debt before you leave the workforce, which will help stretch your retirement savings.

If possible, delay taking your Social Security check until age 70. For retirees born in 1943 or later, Social Security benefits increase by about 7 percent each year you delay taking them from age 62 through 66 and by 8 percent until age 70, says Laurence Kotlikoff, an economics professor at Boston University. Plus, your actual payment will be indexed for inflation. So, if inflation is running at 3 percent, your benefit will increase at 10 or 11 percent for each year you delay taking it. Not bad for a little patience.

Good retirement planning does require patience—and fortitude. Though she was on the verge of cashing out, Fuchs, the Washington attorney, decided to stay put. “Part of it was inertia,” she says, “but the other part was my 82-year-old father’s voice in my head, constantly reminding me that investing was something you did for the long term.” That’s one voice in your head worth heeding.

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