In 2008, the stock market had its worst year since 1931.Given that returns have continued to be brutal in '09, and with constant chatter about "the second Great Depression," it should surprise exactly no one that many Americans are worried about retirement.

As it turns out, they should be. According to the 18th annual Retirement Confidence Survey, conducted in April 2008 (before this mess really got going), less than half of workers have attempted to calculate how much money they will need for a comfortable retirement. That means that over half of the working population hasn't even attempted to run the numbers! Not only that, but the survey goes on to report that 46% of workers have a total savings of less than $50,000. Twenty-two percent say they have no savings at all.

In addition to insufficient savings, future retirees will have to deal with rising health-care costs, unreliable Social Security benefits, and underfunded (or nonexistent) pension plans. Robert Brokamp, advisor of the Fool's Rule Your Retirement newsletter, warns against these four common mistakes that can lead to a disastrous retirement:

1. Plan too late.
Studies have shown that the length of time you invest has more of an impact than the amount you save. An investor starting in her 30s or 40s has to save significantly more to catch up. According to the U.S. Department of Labor, it's three times as much for every 10 years of delay.

Robert suggests calculating how much you will need in retirement according to inflation, your lifestyle, and any retiree benefits you expect to receive. Then calculate exactly how much you need to sock away per month to meet your goal.

2. Don't save enough.
It's no secret that we have become a society of consumerism, constantly trying to keep up with the Joneses. The average American currently saves about 3%, while other industrialized nations such as France and Germany have a savings rate of about 10%.Take a look at the eye-opening chart below, which Columbia Business School professor Bruce Greenwald recently shared during a talk at Fool HQ.



Disposable Income (nominal)

Savings Rate





































Clearly, saving is not a priority for Americans. But if you would like to retire, ensure the discipline to save by having your monthly contribution automatically deducted from your paycheck. It's less painful to part with, and you'll never skip a month.

3. Don't invest wisely.
Asset allocation plays a very important role in retirement planning. The theory is simple: Don't put all your eggs in one basket. This means diversifying your portfolio to include the five major asset classes (large-cap stocks, small-cap stocks, foreign stocks, bonds, and REITs). The amount you allocate to each will depend on your risk tolerance and number of years from retirement.

For example, Robert's "Fool's Rules for Asset Allocation" shows suggested allocation for a conservative, moderate, and aggressive investor:

Asset class





Large-cap stocks

Procter & Gamble (NYSE: PG); Google (Nasdaq: GOOG)




Small-cap stocks

Chipotle (NYSE: CMG); Jones Soda (Nasdaq: JSDA)




Foreign Stocks

Cemex (NYSE: CX); GlaxoSmithKline (NYSE: GSK); Petrobras (NYSE: PBR)





Vanguard Long-Term Bond ETF (BLV)





Vanguard REIT ETF (VNQ)




According to these profiles, large-cap stocks, which tend to be less volatile, should make up the bulk of your stock allocation. (As we've learned from the past year, though, "tend to be" is not the same as "are always.")

Small-cap stocks (companies with a market cap of less than $2 billion) offer higher potential returns, but they are a bit riskier and so should make up a smaller percentage of your portfolio. International stocks can often help to limit your exposure to the U.S. economy. Exposure to REITs provides you with an asset that is not highly correlated with the stock market. Bonds, being a lower-risk investment vehicle, should make up an increasing percentage of your portfolio as you near retirement.

4. Cashing out too early. Dipping into your retirement savings might seem like a viable short-term solution if you're in a pinch, but there are so many reasons why you should avoid doing so if at all possible. First of all, you're undoing the magic of compounding interest. As mentioned, starting over can set you back years. Secondly, if you're withdrawing from a 401(k) or IRA, you'll face an automatic 10% tax penalty. So unless you're facing an emergency (medical or otherwise) cashing out is a costly mistake.

The Foolish bottom line
Avoid these four costly mistakes and you'll considerably increase your chance of a comfortable retirement. Remember to plan early, save a sufficient amount, invest wisely, and if you have a choice, never cash out your 401(k) or IRA ... until you're drawing it down in your golden years, that is.

Steering clear of the pitfalls of financial planning and staying disciplined can be difficult, especially when you're constantly faced with decisions. Robert and the Rule Your Retirement team aim to help the average investor with just such decisions. You can try the service free of charge for 30 days -- without obligation to buy a thing. You'll have full access to all back issues, as well as retirement planning calculators, model portfolios, and advice for surviving in today's economic climate.

Click here to give it a try.

Claire Stephanic does not own any of the companies mentioned. Petrobras and GlaxoSmithKline are Income Investor recommendations. Google is a Rule Breakers recommendation. Chipotle is both a Rule Breakers and Motley Fool Hidden Gems pick. Cemex is both a Global Gains and Stock Advisor selection. The Fool owns shares of Chipotle and Cemex. The Fool has a disclosure policy.