Lifestyle

3 Reasons People Retire Broke, And How You Can Avoid The Mistakes

by Derek Hoyt
Marija Anicic

If you want to be able to retire in comfort and avoid decreasing the quality of your life, you need to take control of your daily actions now.

A person who can identify areas of both strength and weakness in his or her routine will be much more likely to succeed than individuals who never question or think of better ways to work and manage resources.

Therefore, let's take a look at three reasons people retire broke so that you can hopefully avoid certain pitfalls and set yourself up for the future you want.

1. People don't invest.

According to a survey done by Bankrate, 36 percent of Americans are not saving for retirement. This is a significant number of people who are not taking the necessary steps to ensure they'll be able to live comfortably when they reach retirement age. Many people do not invest in the market due to either a lack of knowledge or fear. Either way, when a person does not invest any money into the market, he or she will not be able to reap any benefits of rising stock prices.

Many people do not invest in the market due to either a lack of knowledge or fear. Either way, when a person does not invest any money into the market, he or she will not be able to reap any benefits of rising stock prices.

If you are one of the Americans not investing for retirement, it's time to act. The longer you wait to get started, the less time you have to weather bad market storms and allow compounding interest to work in your favor. Remember, you do not get any of the benefits of the stock market if you are not making your dollars work for you.

2. People panic when market prices fall.

When the market fell between 2008 and 2009, many people got nervous and sold almost all of their stocks and investments. This made people realize their losses and prevented them from capitalizing on the amazing bull market that followed.

It is hard when you are watching all your investments lose money not to panic and want to pull the plug. The logic is, "Well I would rather have a few dollars left than lose everything." This mindset, however, makes many people buy high and sell low, causing a vicious loop of losing money and never gaining traction.

The key to building a successful retirement account is to invest for the long run. Do not let short-term paper losses impact your future self's emergency fund!

3. People make impulsive decisions.

When I first started trading options, I made a very expensive mistake. I decided that I wanted to sell some puts because I believed the pharmaceutical stock CYTK was going to rise. Well, I began to tell myself that it was going to rise dramatically because of an upcoming announcement on a drug that was being developed. Needless to say, I started to get greedy. I sold more puts than I should have and, what do you know? CYTK missed its drug trial benchmark and the stock plummeted. I lost all of my investment in one day -- very frustrating, especially in hindsight. This could easily have been avoided if I did not get greedy and have unrealistic expectations.

Well, I began to tell myself that it was going to rise dramatically because of an upcoming announcement on a drug that was being developed. Needless to say, I started to get greedy. I sold more puts than I should have and, what do you know? CYTK missed its drug trial benchmark and the stock plummeted.

I lost all of my investment in one day -- very frustrating, especially in hindsight, and because it could easily have been avoided if I had not gotten greedy and had unrealistic expectations.

Do not make mistakes that could have been avoided. Find a mentor to help you.

Do not let immaturity and ignorance impact your retirement. We are always one crazy decision away from destroying everything we have worked for -- one bad move on speculative stocks, one afternoon of day trading futures and the market tanks or even one impulsive buy at a luxury car dealership.

All it takes is one moment and we can undo years of hard work. We need to always consider the long-term impact of our decisions and goals and to protect ourselves from ourselves.

This article was originally published on Modern Cents.