YONKERS, NY — Making the wrong financial choices can be costly—as much as $1 million dollars says Consumer Reports, which calculates a price tag for 12 of the biggest personal money mistakes consumers can make. 

“A lot of people are better at watching their pennies than managing their dollars, and as a result they make some expensive but totally avoidable mistakes,” said Greg Daugherty, executive editor Consumer Reports.  “Over the course of a lifetime, the amount of money they lose out on can be staggering.”

In the February 2008 issue, the Consumer Reports Money Lab calculated just how much making the wrong choices can cost. Here is a look at some of the more common blunders and how to avoid them:  

1. Investing too conservatively during retirement (CR estimated cost: $360,000 to $750,000)Conventional wisdom suggests that as retirees age, they should shift money out of stocks and into more stable investments, such as bonds. But annual returns on bonds may barely keep pace with inflation, while stocks, over time, typically provide returns significantly above inflation. And inflation can be a retiree’s worst enemy.  Consumer Reports Money Lab's test found that on average, over a variety of 20- and 35-year periods from 1940 through 2006, a $500,000 all-stock portfolio provided a hypothetical investor with $750,000 more than an all-bond one.                 

   CR's Advice: Weight your asset mix as heavily toward stocks as your comfort level allows. If all-stock gives you the willies, consider, for example, an 80/20 or 70/30 stock/bond mix.

2. Retiring before it’s necessary (CR estimated cost: $237,000 to $309,000)

   Early retirement may be fun to fantasize about, but it can come at a huge price. Early retirees give up income they would have earned during what might be the best-paid years of their career. Medicare doesn’t cover them until age 65, so they might have to buy individual health insurance at an age when costs are apt to be at their highest. Retiring early can also result in reduced Social Security benefits.

   CR's Advice: People in good health who have a choice about when to retire should try to wait until their full retirement age.

3. Launching a divorce war (CR estimated cost: $49,000 to $188,000)

    Divorce may  be  unavoidable  sometimes,  but  spouses  can  take  steps  to  reduce  the  financial impact. Hiring lawyers can ensure everyone’s interests are represented, but the more issues spouses want to slug out, the more billable hours attorneys can charge. CR's report found that a low-conflict divorce can generally be mediated for about 75 percent less than using attorneys and going to trial.

   CR's Advice:  Because the intensity of the conflict is a major driver of legal costs, work more toward diplomacy than war, which will increase the viability of the low-cost mediation option. Try hardest to get along on custody, often a hot-button issue. Property settlement is a Solomon-like 50-50 split in most states.

4. Maintaining an unhealthy lifestyle (CR estimated cost: $4,600 to $42,000)

   Unhealthy habits mean higher life-insurance premiums. CR asked an Internet life-insurance broker to find the best rate on a $1 million term insurance policy for a 40-year-old, 5’10” male who maintains a healthy lifestyle. Then we asked for the best premiums for the same person if he had one of several risk factors often associated with poor health habits. Consumer Reports Money Lab calculated how much more that added to premiums over the 20 years and found that adopting healthy habits and taking various preventative measures could save as much as $42,000.

   CR's Advice:  Before applying for life insurance, consult a doctor about the best ways to get your stats in line with the “preferred plus” underwriting requirements. Insurers are OK with taking medications to achieve normal blood pressure and cholesterol levels.

5. Under funding your 401(k) (CR estimated cost: $36,000)

   Consumer Reports Money Lab used a hypothetical 40-year-old worker earning $70,000. If that worker made the maximum contribution each year for 20 years, it would allow him or her to postpone paying about $55,000 more in taxes (compared with someone at the average contribution level). The tax-deferred earnings on that amount, assuming annual returns of 7 percent, would come to roughly $45,000 over 20 years. Even after paying taxes on those earnings, and adjusting for inflation, our worker is still ahead by some $36,000. 

   CR's Advice: Contribute as much as you can afford to your 401(k) and don’t miss out on the catch-up provisions for people age 50 and under once you’re eligible.

6. Underinsure a home (CR estimated cost: $16,000 to $194,000)

   Even with the recent drop in home prices, if you lived in the same house for 10 years, it’s likely to be worth 54 to 104 percent more than you paid for it. But if you haven’t updated your homeowners insurance and disaster strikes, you could lose those gains.

   CR's Advice: Ask your insurer to reassess the home’s replacement cost and adjust coverage accordingly. Buy an inflation-guard endorsement. Make sure the policy would pay to rebuild to the current housing code in the area.

Consumer Reports also calculated the cost of other money blunders including: overpaying for a mortgage ($27,000), carrying a credit-card balance ($5,000 to $23,000), ignoring Roth accounts ($9,000 to $26,000), cashing out your 401(k) ($6,000 to $17,000), paying needless fund fees ($4,000), and falling for a scam ($100 to you-name-it).

The complete report, including cost calculations and more information on ways to avoid making costly financial blunders is available in the February 2008 issue of Consumer Reports, wherever magazines are sold. Portions of the story are available for free online at www.ConsumerReports.org.