How to Avoid Sabotaging Your Retirement

Today I’d like to talk to you about mistakes.

First, let me tell you a little story.

In the 1880s, an enterprising Georgia pharmacist named John Pemberton created a new health tonic. It was designed to cure all sorts of ills — morphine addiction, headaches and impotence just to name three.

Pemberton sold his medicinal brew for five cents a glass. It proved popular enough that he and a few partners started a business to manufacture and sell the tonic.

In 1888, Pemberton died and left his share of the company to his son, Charley.

Charley and his mother immediately sold out for a few hundred dollars.

The name of the company?

Coca-Cola.

Now, this type of story isn’t unusual in business. In fact, the owners of Coca Cola would go on to make an equally massive mistake of their own.

In 1931 Pepsi was hardly a rival to Coke. Pepsi was small. Pepsi was bankrupt. Sugar prices and the Great Depression conspired to make the company almost worthless.

Coca-Cola had the chance to buy Pepsi for pennies on the dollar. In fact, Coke turned down three opportunities to buy Pepsi in a ten year span.

They didn’t think it was worth it. Huge mistake, right?

It gets even worse.

Coca Cola was also putting the squeeze on a candy mogul named Charles Guth. He owned a group of retail stores with soda fountains.

Guth was a volume client. Yet Coke wouldn’t give him a discount.

So Guth decided to buy the now-bankrupt Peps. He’d fill his fountains with his own beverage.

And his chemists came up with a new formula. Pepsi was now on a path to become a giant in the industry.

Fifty years later, they started outselling Coke.

“Experience is simply the name we give our mistakes” — Oscar Wilde

Coke’s decision not to buy Pepsi was a mistake of historic proportions. Yet it didn’t really alter the company’s fortunes. Coke is still the premier player in the industry. Everything worked out in the end.

We as investors don’t always have that luxury. We live much closer to the consequences of our mistakes. Poor decisions often have irreversible effects.

Sadly, many of these mistakes we make are all too avoidable.

Let’s talk about one of the most common — taking Social Security too early. A significant majority of retirees claim their benefits before they qualify for the full payout.

For some people, financial necessity dictates starting early. Unless you’re absolutely forced to, however, taking it early is a serious mistake.

If your full retirement age is 67, and you start collecting at 62, your monthly benefit is slashed by 30 percent. Yet if you just hold out until you’re 66, the reduction is a far more palatable 6.7 percent.

Even if Social Security isn’t the cornerstone of your retirement, that’s still a significant amount of money. It’s going to be very difficult — if not impossible — to make up that difference via your investments.

An appetite for early withdrawals is another surefire way to put your later years at risk. As we get close to retirement age, the urge to start tapping that nest egg grows. Sometimes we can’t resist.

Many of us also let old retirement accounts fall by the wayside. Given today’s job mobility, it’s not uncommon for people to have a variety of accounts.

Take them with you! Roll them up into an IRA! Do anything except let them sit behind gathering dust. Zombie retirement plans offer no upside and plenty of needless exposure.

Failing to contribute enough is another pothole to avoid. If you think five percent is pretty good, think again. You should always aim to take full advantage of matching contributions. Over a 30 or 40 year timeline, the money you’re bypassing would probably surprise you.

Finally, if you’re counting on supplementing your retirement income with a job, you need to have an honest conversation with yourself.

Are you certain you’ll be able to find the work you desire?

Are you certain you’ll still feel like working? What sounds good at 40 or 50 may not sound so good at 65 or 70.

Many of us dream of having a small business or part-time retirement job. It’s usually a passion project, something we’d love to do that isn’t too taxing.

That’s a wonderful scenario — just don’t bank on it actually transpiring. We don’t know what the job market or business climate will look like in a couple years, let alone 20. We also aren’t assured of future health.

If a supplemental job or business is part of your projected retirement income, you need to have a viable fallback option.

Mistakes are part of human nature. Yet we must seek to learn from them and mitigate them at every turn.

Do this, and you’ll be on the way to a stable, happy and successful retirement.