6 ‘retirement killers’ to avoid at all costs
If you’re starting to wonder if you’ll have enough money saved for retirement, you’re not alone.
According to the 2020 Employee Benefit Research Institute Retirement Confidence Survey, only 30% of respondents said they were “very confident” that they had enough money for a comfortable retirement. And 61% said preparing for retirement made them feel stressed.
I understand – planning for retirement can be difficult, even if you start early, have some help, and earn a good living.
But when I see those numbers, it also reminds me of everything I’ve seen people go wrong – actions that, at the very least, can derail a retirement and, in some cases, have potentially irreversible consequences.
I call them “retirement killers.”“Here are a few:
1. Not having a written income plan for life
Future retirees and retirees often say that their main concern is surviving on their money. Yet there are many who just walk away, moving to and through retirement without a plan that tells them how much they’ll need from year to year, or where to find the money that will replace their paycheck. , or worse yet, how long their money will last. latest.
The cure: A written income plan is like a compass: if you use it correctly, you will always know where you are and where you are going. You may need to make adjustments each year as priorities and costs are expected to change as you move into retirement. But if you understand and stick to your income plan, it should help keep you on track.
2. Using the Wrong Investment Return Assumptions in Your Income Plan Before and During Retirement
If you’re counting on a 9% return to make your plan work, for example, and the market isn’t cooperating, you’re definitely in trouble!
The cure: Be a little careful when making assumptions about the performance of the market. As a general rule, your income plan should use a withdrawal rate of no more than 4% of your investments to provide income and to be sure that your investment portfolio is positioned to avoid wild fluctuations in the market. Keep at least 18 months to two years of available cash in this portfolio so that you don’t have to sell investment positions to pay income when the market value is falling. Cash and more stable investments in your portfolio help you through a bear market. Better to have a pleasant surprise when the market is stronger than expected than to face a devastating disappointment.
3. Take too much risk with investments
Some people are so caught up in accumulating money that they forget to protect what they have when they retire or near retirement. Others mistakenly think they have a moderate or conservative portfolio when what they actually have is quite aggressive.
The cure: A financial advisor can perform a comprehensive review of your investments, simulate their reaction to historical market crises (the 2000 and 2008 corrections, for example), and assess the vulnerability of your current portfolio to future corrections. Once you have a sense of your true risk exposure, you can reconstruct your investment strategy based on your needs and goals. That’s huge when you count on an enjoyable, stress-free retirement.
4. Do not appreciate the people and activities that are important to you.
Some retirees are so uncomfortable seeing their retirement account balance dwindle that they spend less than they can afford – not taking the trips they once dreamed of or visiting their grandchildren. as often as they could. Then, 20 years after retirement, they are 85 and realize that time is passing, they have done nothing.
The cure: The goal here is to strike a happy medium, and a “bucket” strategy for your assets can give prudent retirees the confidence they need to enjoy their money for life. In this approach, each bucket meets a different need. For example, you might have a “safe” bucket for money that you can get your hands on at any time (cash and cash equivalents) to use for vacations and big purchases. An “income” bracket would include protected market assets and reliable income streams (social security, pension) that you can use to pay your bills. And a bucket of “growth” would contain riskier assets that are chosen to build wealth for future needs and to counter inflation.
5. Giving too much money to children
I have seen this retirement killer in many forms: parents with adult children who still depend on them for daily living expenses and others who pay off their children’s student loans. Some parents lend money to their children at little or no interest, or agree to co-sign a car loan or mortgage. Parents can give their children money too early and then run out of what they need for themselves sooner or later in retirement. I’ve seen far too many examples of couples giving their children everything they have, and it doesn’t help anyone. It doesn’t help the kids and it sure doesn’t help the parents.
The cure: When you fly, they always tell you to put on your oxygen mask first, before helping the person next to you. This should be a rule for parents when it comes to giving or lending money to their children. Always make sure you’re okay first, whether you’re still saving for retirement or already there. And if that makes you stingy, think of it this way: you are giving your kids another kind of gift – the gift of financial independence, for them and for you too.
6. Blindly Believe When Your Financial Professional Tells You, “Everything will be fine”
If you don’t have a plan or if you don’t understand it, you don’t agree, no matter what your advisor says.
The cure: If you’re paying for a tip, you should get it. If your financial professional can’t take the time to develop a plan for you, or doesn’t have the capacity to do so, you should be concerned. Or, if he or she is primarily focused on growth over retention and income, maybe it’s time to move on.
Don’t let these and other mistakes cause you to miss retirement. A good plan can help you overcome bad choices – and the sooner you can get back on track, the better off you’ll feel about your financial future.
Kim Franke-Folstad contributed to this article.
Founder, Integrated Wealth Management
Edward Grosko is the founder and partner of Integrated Wealth Management. (iwmgameplan.com). He has over 35 years of experience in the financial services industry and is a Chartered Financial Consultant and Investor Representative.
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