Retirement Mistake #1 - Mistaking journalists for financial advisors
Who are your financial advisors? The “experts” you see on TV, or in the newspaper? Most of those people majored in journalism or English, not finance or economics. Often, they’re just repeating an opinion they heard elsewhere.
These well-intentioned “experts” must speak to a general audience, so they have to offer general advice. If you accept that generic advice, you’re doing yourself a disservice. Why take financial advice that might help you from people who don’t even know you?
Everyone is different, and every financial strategy needs to be unique. I recognize that. I will get to know you and your financial goals and priorities, then craft a custom strategy for you – a unique plan to sustain and enhance your wealth throughout your retirement.
As you retire, please don’t make the mistake of listening to well-meaning friends, relatives, and “experts” that may not have the understanding of professional retirement and investment advisors.
Retirement Mistake #2 - Retiring without liquidity or diversity
Are most of your assets in one basket? Can you reach in and get them out? You want access to your money in case of an emergency, and flexibility if your retirement goals change.
If your assets are tied up in one investment account, trust, or annuity with restrictions and withdrawal penalties, you could find yourself in a panic if you face a crisis. You may end up borrowing from the bank (or even from those you love). You may even end up forfeiting control of your money.
Do you know where your retirement money will come from? Do you have sources to give you sufficient income?
Retirement Mistake #3 - Living on the interest without touching the principal
The old “don’t touch your principal” rule may actually increase the risk that you will outlive your assets. Depending on your mix of assets, when you bought them, and how much they’ve appreciated, you may be better off liquidating principal and interest on certain assets and allowing interest to accrue on others.
You may be concerned about outliving your money, but that concern shouldn’t force you to pinch pennies and shortchange your quality of life. I can show you how tapping your principal can potentially increase the number of years your desired retirement lifestyle will last.
Retirement Mistake #4 - Retiring without any real goals
Some people retire without the money they need to live well, and without any idea of what they want to do with their lives. That’s a waste.
Ask yourself … what should your retirement be? The time of your life? Or just an aged version of today?
You should be able to retire without financial anxiety.
Retirement Mistake #5 - Assuming you’ll be in a lower tax bracket when you retire
It amazes me how many people think they will retire to a lower tax bracket. That’s a long shot, if not an impossibility.
In order for this to happen, 1) Congress would have to decide never to raise taxes – and taxes are the lowest they’ve been since the 1920s, and 2) you would have to intentionally lower your standard of living when you retire (less income).
Why not plan to raise or enhance your standard of living and reduce or defer taxes? You can plan to do both, it is possible.
Retirement Mistake #6 - Trusting a calculator to tell you when to retire
Retirement isn’t just a numbers decision. You’ll find plenty of web sites that tell you “how much you need to retire.” But these one-size-fits-all calculators can’t tell you if your investment portfolio may be sufficient to meet your retirement goals.
Because what’s “enough” can vary from person to person and year to year, you need professional guidance and a flexible plan for distributing your retirement assets, not a one-time calculation.
Retirement Mistake #7 - Retiring early only to reduce your Social Security
Early retirement may actually reduce your retirement benefits. If you choose to continue working part-time at your company or business, it can cost you in Social Security income.
Believe it or not, the federal government defines “early” retirement as retirement that occurs between ages 62 and 67. If you retire within that age bracket, your SSI benefits will be reduced 20-30%. And if you retire within that demographic window only to work part-time in some capacity, you’ll lose up to $1 in SSI benefits for every $2 you take home from the office above $12,480 (the 2006 exemption limit, which has climbed by only hundreds of dollars annually).
Even if you retire at 67 with “full” Social Security benefits, you can still face tough tax issues related to Social Security income.
Retirement Mistake #8 - Drawing income from the wrong assets
What’s the first move you should make when it comes to distributing retirement income? Do you tap your 401(k) first, or sell your Treasury bonds? And what about that IRA, Roth IRA, or annuity? The decision is critical, because taking your distributions in the wrong order could significantly reduce the number of years your desired retirement income lasts.
Many people draw retirement income from assets they should touch last, or shouldn’t touch at all. They take a tax hit they weren’t expecting; they endanger their principal.
Retirement Mistake #9 - Choosing the wrong beneficiary
Fortunes have been lost because someone chose the wrong beneficiary. While you may not have a fortune, you have certainly worked and saved to create a comfortable life, with the intention that your assets will be distributed purposefully after you are gone.
You need to designate beneficiaries in a way that permits wealth transfer without probate, and without the possibility of challenges from “creditors and predators.” If you have a large IRA, choosing the right beneficiary could allow you to stretch your accumulated wealth for decades, allowing tax-deferred growth.
Retirement Mistake #10 - Retiring without estate and insurance planning
If you pass on estate and insurance planning, your heirs will have even more grief when you pass away. Make this mistake, and you open the door for probate and taxes to take your wealth. You also leave yourself open to family disputes, lawsuits, and the burden of staggering healthcare costs.
You should have three vital documents: a Will stating how your assets will be divided, a Living Will to spell out the degree of medical care you want if you become incapacitated, and Power of Attorney to designate someone to manage your assets if you are incapable of doing so.
And don’t forget insurance. Life insurance can give your spouse, partner or family financial stability if your life ends. Long-term care insurance can prevent you from spending down your estate. With proper estate and insurance planning, your heirs can defer or even avoid death taxes.
Retirement Mistake #11 - Retiring on hope
I’m amazed how many people retire without a plan. They walk away from work with no idea how long their money will last, no clue as to how it should be invested, and only vague ideas of what they want to do.
You can’t retire on hope. When you get financially complacent, when you just hope or assume everything will be okay, you risk financial jeopardy.
Can you imagine running out of money, and leaving nothing to your children? (Or worse yet, borrowing from your children or having to move in with them?)
Retirement Mistake #12 - Ignoring Inflation
In 1986, you could get a round of golf for $20 and a gallon of gas for $1. What do they cost today? Double that or more. That’s the impact of inflation.
Any retirement plan has to take inflation into account. Just for the sake of argument, let’s say inflation averages 4% for the next 20 years. That means what costs $60,000 today will cost $88,000 in 2016 and $131,400 in 2026. Now consider that U.S. medical costs have almost tripled in the last 20 years; we can only guess where they will be in 2026.
The relatively mild inflation that we’ve had over the past decade may not last. By managing the distribution of your retirement assets with inflation in mind, I can help make sure your “real” (inflation-adjusted) income can be maintained.
Retirement Mistake #13 - Making seat-of-your-pants money decisions
Spur-of-the-moment financial decisions with your portfolio or retirement plan can hurt you for years to come. You know how it happens: one day, you watch the market surge or dive, and hours later, you’re reallocating your portfolio online. Or you elect to schedule retirement income in the way that makes sense for most people … but not necessarily for you.
This anxious, do-it-yourself retirement planning can leave you confused and uncertain what to do next. Fortunately, there’s a better way. You can find a financial advisor – someone you can meet face-to-face with, someone who can be a partner in your retirement planning.
My clients refer me to their friends and colleagues because they’ve seen the value of that kind of relationship in their own lives.
Retirement Mistake #14 - Handing your heirs tax problems
When you pass away, your remaining assets can only go to three places: children, charity or Congress. Where do you want your wealth to go?
If you want as much of it to go to your heirs as possible, then I urge you to investigate some tax-efficient estate planning vehicles – many of which offer significant tax benefits for retirees.
Without good planning, taxes may eat up a significant portion of your estate, and leave your heirs scrambling to pay huge tax bills. With good planning, you may defer or avoid taxes and keep wealth growing for years to come.
Retirement Mistake #15 - Dismissing the need for long-term care
A year’s stay at a nursing home can cost $40,000 or more. If you or your loved ones need that kind of care, how quickly can you free up that kind of money?
What about Medicare? Well, Medicare will not take care of your long-term care needs. Medicare will only pay for what is considered “required care,” and then only after your assets have been spent down.
I’m sure you’ve seen articles and reports predicting that roughly half of today’s seniors will someday enter a nursing home. I wouldn’t take these predictions lightly. In fact, you may know someone shouldering the cost of long-term care today.
Retirement Mistake #16 - Being talked into the wrong investments
In retirement, your investments should meet your needs – not the quotas of some brokerage firm. Many “financial planners” are actually commission-based brokers who are often urged to sell mutual funds, annuities and other products sponsored by their broker-dealers. This arrangement limits your choices, and the sales pressure taints the whole relationship.
Retirement Mistake #17 - Losing a big chunk of your retirement money in one wrong move
What will you do with your 401(k) assets when you retire? If you’re like most people, you’ve probably assumed you will roll them over into an IRA. An IRA rollover will give you flexibility when it comes to reinvesting your savings. And when it comes to IRA withdrawals, the IRS is fairly lenient.
But you can’t be cavalier about IRA withdrawals: if you make the wrong move at the wrong time, you might be shocked at tax time.
Let’s say you forget to take the first required distribution from your IRA after you turn 70½. If you miss that April 1 deadline and take that distribution later, you will trigger a 50% tax penalty on the amount you failed to withdraw on time. The good news is that you can plan to avoid this blunder, and other costly mistakes.
Take a look at your options when it comes to IRA withdrawals. The way you withdraw your savings may affect your retirement plans, income and quality of life.
Retirement Mistake #18 - Thinking tomorrow will be just like today
Many people make their investment decisions based on what’s happening today – as if today will just keep on going, as if nothing will ever change. But change is inevitable. (Look in the mirror and ask yourself if anything has changed over the last 15 or 20 years.)
Other people base their investment decisions on what has done well in the past, not realizing it won’t necessarily continue this way. It’s kind of like driving your car by only looking in the rear view mirror and not looking ahead.
In your car, there’s a reason the windshield is 20 times bigger than the rear view mirror. You need to see what’s ahead, not where you’ve been.
Retirement Mistake #19 - Retiring without an investment strategy
We find most people don’t have an investment strategy. Their strategy is called “making money!” That’s not a strategy, it’s a desire. We all invest to make money. But investing during retirement is totally different than investing for retirement.
When you’re 35 or 45, it’s all about the return on your investment and how fast your wealth can grow. But when you retire, the goals change. You have two goals: generate income, and don’t run out of money!
If your investments are losing money or exposing you to excess risk, they’re not helping you. You need to retire with a coherent, long-range strategy, not a random collection of investments. A good strategy will help you determine how much to withdraw from your savings and how to position your assets for continued growth.
Don’t dare retire without an investment strategy.
Retirement Mistake #20 - Retiring without the help of a Financial Professional.
According to my records, you’re about to retire – and I haven’t heard from you. Could you be making the biggest mistake of all? If you’re retiring without the assistance of a financial professional, please call me. In fact, I’ll be calling you – to set up a time to meet, talk and start planning for your retirement needs. The question is not whether you have enough to retire. The new question is: “How can you make your retirement money last for 20-40 years after your last paycheck?” Don’t risk outliving your money.