You know that you want to retire successfully, with enough money to do what you want. However, you might not realize that you are sacrificing your retirement when you aren’t careful about what you do. It’s vital that you be on the lookout for items that can erode your purchasing power, or that create a situation in which your money isn’t working for you in the way that it should. Here are 5 things that can hamper you as you attempt to reach your retirement goals:

1. Debt

One of the biggest issues is retiring when you still have debt. Even if you have your debt paid off before you retire, it can impact your ability to enjoy a successful retirement. When you are in debt, money that could go to your benefit instead lines the pockets of someone else. The interest you pay on debt affects you, in that rather than putting that money to work for you, it is benefiting someone else. This is especially dangerous if you still have debt when you retire. Instead of being financially free, you are still bogged down by obligations.

2. Failure to Get the Best Tax Advantage

Before you start opening other investment accounts — accounts without tax advantages — it is a good idea to do what you can in terms of maxing out tax advantages accounts. IRAs and 401ks offer the opportunity to keep more of your hard-earned cash. A Roth option on either of these can mean you pay no taxes on your distributions during income. Whether you go with a Roth or not depends on a great many factors, but if you want to protect some of your money from the government, look to maxing out tax advantaged retirement accounts first.

3. Raiding Your Retirement Account

Sure, you can withdraw money from your IRA under certain circumstances, penalty-free. When you borrow from your 401k, you end up paying yourself back. However, whether you raid your retirement account to pay for your kids’ college, or for some other “emergency” there is more to it than whether or not you put the money back later. Once you take that principal out of your retirement account, it is no longer working on your behalf. Your account won’t grow as quickly, and you will miss out on the earnings you could have had.

4. Paying Excessive Fees

When I opened my first retirement account, I didn’t think much about the fees. As a result, I ended up with a managed mutual fund in my IRA. That sort of a thing can be a real problem.  Fees erode your earnings. While there will always be fees associated with investments, you don’t need to pay high fees. Look for low-cost investments; avoiding paying fees when possible.

5. Failure to Account for Inflation

You also need to account for inflation. This sneaky, subtle effect can erode your purchasing power. $1 million in your retirement account might not matter so much in 20 years. The effects of inflation mean that what cost $1 now may cost $2 in 20 years. We don’t know how inflation will go, but estimates are that inflation, historically, is about 3% a year. When putting together your retirement portfolio, you need to make sure that you take that into account.



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.