Protecting Your Future: 9 Risks to a Secure Retirement

Saving and investing for retirement isn't easy. There's a lot that can happen to take you off track, potentially leaving you less money than you hoped for.

From poor financial planning to unexpected events and even nationwide economic woes, here are some of the things that could pose a threat to your secure retirement.

1. Not Investing Enough

It's never easy to figure out how much to invest. After all, you want to make sure you have enough money to deal with your current needs. It's common for people to invest too little, and this can hurt them in the long run.

When saving for retirement, it's smart to contribute as close to the maximum each year into 401K and IRA plans. (That's $18,000 for the 401K and $5,500 for the IRA.) If you can't contribute quite that much, at least put enough in to get the company match on your 401K plan.

Even a few extra dollars per month into retirement accounts can make a big difference. For example, let's say you have $50,000 in an account and contribute $500 per month for 25 years. Assuming a 7% return, your portfolio would amount to about $677,000. But what if you contributed $1,000 monthly? Then it would hit nearly $1.1 million.

2. Starting Too Late

When investing, time is your biggest friend. The more time you have to invest, the bigger your nest egg can grow. Thus, one of the biggest threats to a secure retirement is failing to contribute to your fund early in life. If you're past 40 years old, you may have only a couple of decades to invest before you wish to stop working, and that may not be long enough to amass the kind of wealth you'll need for a long and comfortable retirement.

Let's say you invest $25,000 today and add $1,000 per month until you are 65. If you're currently 45 and get a 7% annual return, you'll have about $625,000 upon retirement. Not bad, but if you had started when you were 25, you'd have nearly $3 million.

3. Raiding Retirement Funds

Retirement accounts such as a 401K or IRA are designed to have money grow more or less untouched until you reach retirement age. You can withdraw money from them, but there's a cost.

When you raid these retirement funds, you'll lose the money in penalties, but you'll also lose the potential earnings of the money you take out. Over time, this can cost an investor thousands of dollars.

4. Economic Growth

For decades following World War II, the annual growth rate of the American economy averaged more than 3%, with some years seeing double that. But in recent years, that annual rate has shrunk to barely 2%. In short, the American economy is not growing as fast as it once was, and that has implications for household income, corporate growth, and employment.

5. Possible Entitlement Cuts

Many lawmakers on Capitol Hill have been warning Americans of a looming crisis in entitlement funding. Observers of the federal budget note that unless there is serious reform, Social Security Trust Funds could be depleted within 20 years. This means that for the younger generation, there may not be as much left from the government upon retirement.

It's important to note, however, that workers who want to live comfortably after they are done working should not be counting on Social Security to carry them through the end of their life. Someone who saves aggressively and invests wisely should be able to amass enough in a retirement fund to get by even if Social Security benefits are adjusted downward or even eliminated.

6. Declining Pensions

If you currently work for a company that offers a defined benefit plan, you are a rare breed. In recent years, companies have shifted from offering pensions to instead offering 401K plans, in which workers invest on their own. In most cases, they will also get a contribution from their employer, but that's not guaranteed. This doesn't necessarily mean you'll be destitute at retirement, but it does require employees to be much more engaged in their retirement planning.

7. Placing All Your Eggs in One Basket

Even if you are saving aggressively and investing every penny you can, it's possible to end up with less money than you need in retirement. It can happen when your portfolio is too heavily balanced toward a single investment. It's unwise to invest a high percentage of your savings in one company or even one industry or asset class, because one bad day could wipe out a large chunk of your savings. (Consider the plight of Enron employees who lost nearly everything had most of their savings in company stock.)

To protect your retirement money, invest in a diverse mixture of stocks in various sizes and asset classes. Buy mutual funds instead of individual stocks, if at all possible.

8. Funding College Instead of Retirement

It's never a bad idea to save money to contribute to your children's education. There are several vehicles including 529 plans that allow you to invest money tax-free toward college. But many investors become so focused on saving for college that they fail to contribute enough to their own retirement fund.

Remember that it's possible to borrow money for college, but you can't borrow money to fund your retirement if you find you're lacking in funds when you're done working. Ideally, you'll be able to amass enough money to fund college and your retirement comfortably. But if you have to make a choice, pay your future self first, then contribute to the college fund.

9. Being Poorly Insured

You may feel like nothing bad will ever happen to you. You are young and healthy. You're a safe driver and you live in a nice neighborhood. So you skimp on things like health, auto, and homeowner's insurance. You may think you're saving money, but you're at serious risk for big financial loss if you get seriously ill or have a serious accident.

Being uninsured or underinsured can leave you struggling to make ends meet, placing retirement savings on the back burner. You may even have to raid your retirement accounts to pay the bills. It's wise to perform an insurance assessment to determine if you have the proper level of insurance to protect yourself financially.