Follow these three rules, and retire comfortably

Opinion: They boil down to: Monthly income is the ultimate goal

The three big factors to consider when planning for retirement are income, mortgage financing and a tax-deferred retirement plan, such as a 401(k). Other issues are important too, but if you can get those three right, you’ll probably be living well in retirement.
Your goal must be to generate sufficient income with the retirement nest egg so you can cover your expenses, and even save money by spending less than you earn. Invest as if you are going to live forever. Why not? There will probably be at least one other person in your family counting on you not to burn through a lifetime’s hard work. With sufficient income, you will face the wonderful “problem,” when retired, of cash piling up. 

Mortgage finance 

The mortgage mess is behind us and most of the silliest loan types are no longer available. But for most people, there’s still a very dangerous financial vehicle out there, which is the 30-year mortgage.  

That might be a controversial statement, because 30-year loans account for most of U.S. mortgage financing. But if you take a real hard look at the numbers, you may find that if you buy “a little less house,” you can afford a 15-year loan. In your favor are lower interest rates and 180 fewer payments.  

I once heard a banker say, “You might as well get used to always having a car payment and always having a mortgage payment.” That is terrible advice. If you can afford a 15-year loan, do it. After it’s paid off, you may be able to leave behind the world of borrowing. 

401(k) 

If your employer provides a 401(k) or other tax-deferred retirement savings plan, take advantage of it. Most employers offer a matching contribution, up to a certain percentage of your salary. That means a pretty hefty return on your investment during the first year. You also defer taxes on the amount you contribute, lowering your tax bill. Plus, you avoid the temptation of having the money pass through your hands on the way to the retirement account. 

One of the saddest trends is that only about four out of 10 workers under age 25 contribute to retirement plans, while only six out of 10 workers ages 25-34 make contributions. For more on this phenomenon and on the remarkable advantages of starting your retirement savings early, see major retirement savings mistakes — by millennials.

Major retirement savings mistakes — by millennials

If you knew then what you know now...

Unfortunately 401(k) plan participants in their 20s and 30s are making a number of mistakes with their savings and investments — and what seem like small mistakes when you’re young can have big consequences later in life. 

Not saving 

The first big mistake is that some young workers aren’t contributing to their 401(k) plan at all. According to a Vanguard Group report, How America Saves 2013: A report on Vanguard 2012 defined contribution plan data , only four in 10 workers under the age of 25 and just six in 10 workers ages 25-34 contribute to their employer-sponsored retirement plan. By contrast, 74% of those ages 55–64 contribute to their 401(k). 

The second mistake is this: young workers who do defer a portion of their compensation into their employer-sponsored retirement plan aren’t saving enough to get their company match. 

Others share this opinion about the biggest mistakes that young workers make when saving and investing for retirement. “The biggest mistake I see young investors make is not keeping a long-term perspective,” said Troy Redstone, president of retirement services at PHD Retirement Consultants, an Overland Park, Kan. consulting firm. “They have trouble picturing themselves in the future and they minimize the importance of saving for that unknown future. They mistakenly believe they have all the time in the world and they just don’t take savings seriously.”

Early 401(k) withdrawal replaces homes as American piggy bank

Premature withdrawals from retirement accounts have become America's new piggy bank, cracked open in record amounts during lean times by people like Cindy Cromie, who needed the money to rent a U-Haul and start a new life. 

So, last year, at age 56, she moved about 90 miles from her home in Edinboro, Pennsylvania, into her mother's basement. To make ends meet as she moved and then quit the job, Cromie pulled out $2,767 from her retirement savings. 

The median size of a 401(k) is $24,400 as of March 31, with people older than 55 having $65,300, according to Fidelity Investments. Those funds can disappear quickly in retirement, and the early withdrawals indicate that the coming retirement crisis could be even more acute than expected. 

For decades, Americans' homes were their piggy banks. As values rose, they refinanced or took out second mortgages. Since the housing collapse of 2008, that's often no longer an option. Taking money from a 401(k) -- and worrying about the consequences later -- became a more attractive alternative and a record number of Americans made early withdrawals in 2010. 

Costco Wholesale (COST) Corp. tells workers about the dangers of dipping into their accounts and urges them not to, said Patrick Callans, senior vice president of human resources at the Issaquah, Washington-based retailer. Costco has about 103,000 employees. 

"Educating employees about the plan -- and the benefits of saving for retirement -- is good for employees and good for Costco," Callans wrote in a letter to the company's management teams in April, emphasizing that the company wants people to have enough saved when it comes time to retire.

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