Biggest Retirement Planning Mistakes People Make TodaySubmitted by Tidemark Financial Partners on August 6th, 2018
It is clear that this is no longer your father’s retirement. For the most part, our parents did not have to contend with increasing retirement costs, expanding longevity, and many of them didn’t have to rely solely on their own assets for lifetime income sufficiency. To put it another way, they had a little more margin for error in planning their retirement than their children and grandchildren. Today, the need to secure a comfortable retirement that can last 30 years or more leaves no room for error, especially if mistakes are made along the way that could compound over time. That is why it is more important than ever to avoid the common mistakes many people make when planning their retirement.
Retirement Planning Mistake #1: Not having a clear vision of retirement
There is much more to preparing for retirement today than setting a target date (i.e., age 65) and assigning a number (i.e., $100,000 a year). The problem is they are just numbers, which have the effect of reducing the significance of planning for your final life stage to an economic finish line. What happens after you retire is much more important than getting there. How will you spend your time and money in retirement? How will you make the transition from work to freedom? What do you want to accomplish? You may be financially prepared for retirement, but will you be emotionally prepared? Having a clear vision of your retirement ambitions will not only generate the motivation to stick to your investment strategy, it will ensure you work toward the fulfillment that eludes many retirees.
Retirement Planning Mistake #2: Underestimating retirement costs
Too much emphasis today is place on “your number” – that is, what you calculate to be the amount of capital you will need to sustain your lifestyle in retirement. In too many cases, that number is based on some faulty assumptions that could lead to problems down the road. One common assumption is that living expenses should decrease in retirement. Yet, many people fail to consider the rising cost of health care, which can be as high as $400,000 for the average retired couple. An increasing number of retirees are caught in the middle of caring for aging parents while subsidizing children who may be struggling financially. If either spouse requires long-term care assistance, it could increase costs by tens of thousands a year.
Retirement Planning Mistake #3: Focusing on investment performance instead of risk
Most people don’t find out until it is too late that they have very little control over their investment performance. It is very difficult to predict the movements of the markets let alone know how any particular stock will perform at any given time. Yet, many investors still remained fixed on investment returns, which can detract them from what they should be focused on – managing risk. Risks are more certain which means they can be managed. For instance, we know for certain the stock market will go down at some point and that inflation and interest rates will increase at some point. With that certainty, you can arrange your assets that strives to protect against those risks.
Retirement Planning Mistake #4: Not knowing where you are in relation to your goal
If there is one thing we have learned over the last decade it’s that the economy and the markets can change very quickly. If you experienced the financial meltdown in 2008, you also know your own financial circumstances can change rapidly. For many people, their retirement targets moved but they didn’t make the necessary adjustments. That’s why you can’t set and forget your retirement plan. Rather, you should take frequent snapshots of your financial circumstances and where your stand in relation to your goals.
Your retirement plan should be adjusted based on your evolving needs and priorities. When done regularly, the adjustments are typically small, just enough to keep you on track. When you always know where the target is, you’ll know if your aim is true.
Of course, if you have any questions please do not hesitate on reaching out to me.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.