Project Retirement

The list of reasons you may not be rich doesn't end at 10. Caring what your neighbors think, not being patient, having bad habits, not having goals, not being prepared, trying to make a quick buck, relying on others to handle your money, investing in things you don't understand, being financially afraid and ignoring your finances.

Here are 10 more possible reasons you aren't rich:

You care what your car looks like: A car is a means of transportation to get from one place to another, but many people don't view it that way. Instead, they consider it a reflection of themselves and spend money every two years or so to impress others instead of driving the car for its entire useful life and investing the money saved.

You feel entitlement: If you believe you deserve to live a certain lifestyle, have certain things and spend a certain amount before you have earned to live that way, you will have to borrow money. That large chunk of debt will keep you from building wealth.

You lack diversification: There is a reason one of the oldest pieces of financial advice is to not keep all your eggs in a single basket. Having a diversified investment portfolio makes it much less likely that wealth will suddenly disappear.

You started too late: The magic of compound interest works best over long periods of time. If you find you're always saying there will be time to save and invest in a couple more years, you'll wake up one day to find retirement is just around the corner and there is still nothing in your retirement account.

You don't do what you enjoy: While your job doesn't necessarily need to be your dream job, you need to enjoy it. If you choose a job you don't like just for the money, you'll likely spend all that extra cash trying to relieve the stress of doing work you hate.

You don't like to learn: You may have assumed that once you graduated from college, there was no need to study or learn. That attitude might be enough to get you your first job or keep you employed, but it will never make you rich. A willingness to learn to improve your career and finances are essential if you want to eventually become wealthy.

You buy things you don't use: Take a look around your house, in the closets, basement, attic and garage and see if there are a lot of things you haven't used in the past year. If there are, chances are that all those things you purchased were wasted money that could have been used to increase your net worth.

You don't understand value: You buy things for any number of reasons besides the value that the purchase brings to you. This is not limited to those who feel the need to buy the most expensive items, but can also apply to those who always purchase the cheapest goods. Rarely are either the best value, and it's only when you learn to purchase good value that you have money left over to invest for your future.

Your house is too big: When you buy a house that is bigger than you can afford or need, you end up spending extra money on longer debt payments, increased taxes, higher upkeep and more things to fill it. Some people will try to argue that the increased value of the house makes it a good investment, but the truth is that unless you are willing to downgrade your living standards, which most people are not, it will never be a liquid asset or money that you can ever use and enjoy.

You fail to take advantage of opportunities: There has probably been more than one occasion where you heard about someone who has made it big and thought to yourself, "I could have thought of that." There are plenty of opportunities if you have the will and determination to keep your eyes open.

(Money Magazine) -- In a sense, retirement planning is all about deferred gratification. You live below your means while you work so you can save for a time when you can live however you want. In short, you give up something today so you can live better tomorrow.

But what if preparing for retirement had a more immediate payoff? Wouldn't it be neat if you could enjoy the fruits of your effort now?

Well, maybe you already do. That, at least, is the implication of a recent survey by insurer Northwestern Mutual and health education company LLuminari. The study didn't address retirement per se.

But as the charts to the right show, people who do the sorts of things that constitute good planning tend to feel happier than those who don't. It appears that the very act of preparing for retirement may deliver a reward now as well as later.

No one is suggesting that getting ready for your post-career days guarantees lifelong bliss or that there's a formula for achieving nirvana. (Save an extra $100 a month and be 50% more fulfilled!)

But the notion that taking steps toward a secure retirement can make you more content is hardly a stretch. Economists, psychologists and others who study happiness find that people who have a sense of control over their lives cope better with stress and live more happily, while those who feel powerless are more likely to be depressed.

Or as the playwright George Bernard Shaw put it: "To be in hell is to drift; to be in heaven is to steer."

So what can you do to make yourself feel better about feathering your nest? Apply these three happiness-linked actions to your retirement planning:

If you fail to set goals early on, you'll be drifting instead of steering. So think about the percentage of pre-retirement income you'll want to replace once you retire - say, 80% to 90%. Then use a calculator like our Retirement Planner to see how much you must save each year to have a shot at reaching that goal. Keep refining your savings target as you near retirement.

If the amount you're putting into your 401(k) falls short of your savings target, boost your contribution. If maxing out your 401(k) still leaves a gap, you can funnel additional savings into an IRA or tax-efficient options like index funds or tax-managed funds.

It's unrealistic to avoid borrowing altogether. But you can prevent debt from undermining your retirement security by not carrying a credit-card balance. Not only will you avoid onerous interest charges, but the Northwestern study shows that people who are most committed to paying off their cards are almost 20% more likely to describe themselves as cheerful.

So the next time you're trying to decide between a higher 401(k) contribution and a big-screen TV, you might want to go with the option that may make you feel good now and in the years ahead.

If you find yourself running short on time - say, you're in your 40s or even your 50s, and you haven't gotten started yet - there are still a few things you can do. The key is to do them now.

You should first max out your contributions to tax-favored retirement accounts like IRAs and 401(k)s. For 2008, the IRS allows $15,500 for a 401(k) (though your employer may impose lower limits), and $5,000 for traditional and Roth IRAs. Even the government understands that this is crunch time, and it has devised a few ways to help you out.

For example, workers age 50 and older can put more money into IRAs and workplace retirement plans than younger savers can. That means you can and should contribute an additional $5,000 to a 401(k) and $1,000 to traditional and Roth IRAs.

If you're arriving late to retirement planning, a traditional IRA may be a better choice than a Roth.

There are two basic types of annuities: deferred and immediate.

With a deferred annuity, your money is invested for a period of time until you are ready to begin taking withdrawals, typically in retirement.

If you opt for an immediate annuity you begin to receive payments soon after you make your initial investment. For example, you might consider purchasing an immediate annuity as you approach retirement age.

The deferred annuity accumulates money while the immediate annuity pays out. Deferred annuities can also be converted into immediate annuities when the owner wants to start collecting payments.

Within these two categories, annuities can also be either fixed or variable depending on whether the payout is a fixed sum, tied to the performance of the overall market or group of investments, or a combination of the two.

To build a nest egg large enough to see you through retirement, which may last 30 years or more, you'll need the growth that stocks provide.

The stock market returned 10.4% a year on average between 1926 and 2006, versus just 5.9% for bonds, according to research firm Ibbotson Associates. Given stocks' superior returns over the long haul, most financial advisers recommend that investors whose retirement is more than 20 years away hold at least 3/4 of their portfolios in stocks and stock funds.

Of course, a stock-heavy portfolio can give you some hair-raising moments (or years). For example, during the 1973-74 bear market, U.S. stocks lost 43% of their value - and it took the market three-and-a-half years to recoup those losses. The stock market also suffered a 47.6% decline during the bear market at the start of this decade. It's been suffering in 2008 as well.

If you don't have the stomach for steep downturns, you might increase your allocation to include more bonds or bond funds. Holding, say, 70% of your portfolio in stocks and 30% in bonds will let you capture most of the long-term growth of stocks while sheltering your investments to a certain extent during market downturns.

An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy. Annuities are a popular choice for investors who want to receive a steady income stream in retirement.

Here's how an annuity works: you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. The income you receive from an annuity can be doled out monthly, quarterly, annually or even in a lump sum payment.

The size of your payments are determined by a variety of factors, including the length of your payment period.

You can opt to receive payments for the rest of your life, or for a set number of years. How much you receive depends on whether you opt for a guaranteed payout (fixed annuity) or a payout stream determined by the performance of your annuity's underlying investments (variable annuity).

While annuities can be useful retirement planning tools, they can also be a lousy investment choice for certain people because of their notoriously high expenses. Financial planners and insurance salesmen will frequently try to steer seniors or other people in various stages toward retirement into annuities. Anyone who considers an annuity should research it thoroughly first, before deciding whether it's an appropriate investment for someone in their situation.

Ah, the key question. One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye. But if you plan to build your dream house, trot around the globe, or get that Ph.D. in philosophy you've always wanted, you may need 100% of your annual income - or more.

It's important to make realistic estimates about what kind of expenses you will have in retirement. Be honest about how you want to live in retirement and how much it will cost. These estimates are important when it comes time to figure out how much you need to save in order to comfortably afford your retirement.

One way to begin estimating your retirement costs is to take a close look at your current expenses in various categories, and then estimate how they will change. For example, your mortgage might be paid off by then - and you won't have commuting costs. Then again, your health care costs are likely to rise. For more help making a precise estimate, use this calculator.