10 big retirement planning mistakes

What is your retirement dream? Traveling, spending time with family, going back to school? Will you have enough money saved to make those dreams a reality?

A sound retirement requires careful planning. The fewer mistakes you make along the way, the more likely you will be to have the savings to fund those dreams. Take a look at these 10 common retirement mistakes I believe you should avoid.

1. Not starting early, taking breaks or cashing out. Starting early and saving consistently is the best gift you can give your future self. If you delay savings or cash out your retirement funds (for instance, when you change jobs), you are not taking advantage of compounding interest and you may miss out on matching programs and other retirement benefits your employer offers. If you do step out of the work force temporarily, perhaps to care for children or parents, you can still continue to save. Talk to your financial adviser about a spousal IRA or other saving options.

2. Not setting goals. How do you want to spend your time in retirement? When do you want to retire? And, finally, how much will you need to fund your retirement? If you do not ask yourself (and your spouse/partner) these questions and set goals, it will be difficult to adequately fund your retirement. You need to know where you want to go in order to develop a sound plan to help get you there.

3. Putting college savings ahead of retirement savings. It's tempting, especially today when a college education no longer seems optional, to put money aside for your children's college instead of retirement. Quite simply, there are other options to fund college grants, loans, scholarships, etc. " but there are not other options for funding your retirement. Ideally, you can start early and save for both at the same time. If you can't, save for your retirement first.

4. Not understanding your sources of retirement income. When are you eligible for Social Security? How much will you receive? Do you get a pension through your employer? Are you contributing the maximum to your 401(k) or 403(b) plan? Are you taking advantage of employer matching programs? What about an IRA? Determine if what you are saving is likely to generate enough income to meet your retirement needs. If it's not, then take steps to increase what you're saving through these programs.

5. Planning for an average life expectancy. According to the U.S. Department of Health & Human Services, the average life expectancy for women is 80 vs. 75 for men. How many years does your retirement plan cover? Make sure your plan accounts for the possibility that you outlive your spouse/partner.

6. Counting on your home value. Even if your home has maintained its value with the recent market turmoil, it may be difficult to extract the gains to fund your retirement. Do you want to move out of your home? Are you willing to relocate to an area where the real estate is more affordable, even if it is far away? Have you taken into account moving costs, real estate commissions, tax implications and the cost of a new home? Your home may be one component of your overall plan, but don't count on it to subsidize a significant portion of your retirement.

7. Not considering long-term care insurance. Among people age 75 or older, women are 60 percent more likely than men to need help with one or more activities of daily living. Long-term care insurance is designed to help protect personal assets from the cost of a long-term expenditure, maintain financial independence and provide the options necessary to receive quality care and services.

8. Investing too conservatively. By and large, women tend to invest more conservatively than men. However, if you are too conservative, you may not lose what you've invested, but you do risk not having any real growth of your money " that is, your return after inflation, taxes and fees.

9. Not diversifying your investments. We've all heard the adage "don't put all of your eggs into one basket." Sound advice, yet people often don't follow it. Diversification not only can help you spread investment risk, but it also helps make your portfolio less vulnerable to the ups and downs of a single holding or the market, potentially resulting in steadier returns. This is a critical safeguard, even for those who think they are playing it safe by investing only in the largest, most well-known companies.

10. Not rebalancing. While diversifying is important, it doesn't do much good if you don't regularly rebalance your portfolio to keep it aligned with (or in sync with) your risk tolerance, return objectives and time horizon. Over time, market forces will tend to push your portfolio away from its original target allocation. If stocks experience a period of significant growth, for example, your portfolio of 50 percent stocks and 50 percent bonds could shift to 70 percent stocks and 30 percent bonds, leaving you exposed to more risk than you may want or expect. Leaving your portfolio draft untended is like leaving a toddler alone in a room with a hot stove " the outcome depends far too much on the forces of chance.

- William Creekbaum is a senior investment management consultant for Citi Smith Barney. He can be reached at William.a.creekbaum@smithbarney.com or 689-8704. The views expressed herein are those of the author and do not necessarily reflect the views of Smith Barney or its affiliates.