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YOUNG CAN BENEFIT BY AVOIDING RETIREE ERRORS

Kemper Financial Services recently published a booklet citing the 10 most common mistakes retirees make with their savings.

They were so similar to the mistakes I have discussed with many investors that I thought I would share six of them - ones that involve investing - with you.The younger you are the more you can benefit from avoiding these mistakes:

- Thinking too short term: Many retirees fall into the trap of making all short-term investments in certificates of deposit and money market funds when they have 10 to 20 years of life expectancy.

Consider investing a portion of your funds in growth-oriented equity mutual funds. Some planners suggest subtracting your age from 100 to get an appropriate percentage for growth investments.

- Taking a company pension distribution in cash: Faced with some confusing rules and annuity options for pension distributions, some retirees put off the decision and take the distribution in cash. If you decide to take a lump-sum distribution, often a good idea, make sure you make arrangements to transfer it directly to an IRA to maintain the tax deferral on the distribution. Otherwise, you will be facing a 20 percent withholding by the Internal Revenue Service.

- Not anticipating the rising cost of living and the impact of inflation: During the past 20 years, Kemper says, inflation has averaged 5.9 percent annually. Fortunately, we are seeing a more moderate 3 percent inflation at present, but with no guarantee it will stay low. Assuming an average 4 percent annual inflation rate, the value of $100,000 is reduced to $66,483 in only 10 years. That's even more reason to consider investing a portion of your assets in equity mutual funds.

- Putting all of your money in a single investment class: To many, diversification means putting money into a variety of CDs or Treasury bills with different maturities and at different banks. Though this may seem prudent, it does not give adequate diversification. Establish a sound plan that will diversify your assets between CDs, equity mutual funds and bond funds. Adjust this mix if your needs change.

- Automatically taking your Social Security benefits as soon as possible: Most Americans are eligible for Social Security as early as age 62. Some assume they must begin taking them at this age. If you wait until 65, your benefits will be 20 percent higher. Your decision will depend on your individual circumstances.

- Not doing a regular investment checkup: So many people, not only retirees, make a financial plan and invest their funds without regularly reassessing their needs and adjusting their asset mix. Often investors have no idea how their investments are performing in comparison to market averages of stocks and bonds.

If you are using an investment adviser, a financial planner or a broker, insist on quarterly performance reports showing how your investments have fared. If they are below comparable indexes, ask your adviser to explain the reasons and make changes if warranted.