7 Mistakes to Avoid in Retirement and How Retirement Planning Can HelpSubmitted by JMB Financial Managers on December 22nd, 2021
Only 36% of adults think that they are on track to retire. The main barrier to retiring on time is a lack of proper planning and sufficient savings. However, there are 7 common mistakes that people make when they create their retirement plans:
- Not accounting for longevity
- Not accounting for taxes
- Not staying in shape
- Not adjusting your investments for age
- Not accounting for market ups and downs
- Not having a spending plan
- Not accounting for poor health
We will go into each of these common mistakes in more detail to help you understand how to avoid them in your own retirement planning.
1. Not Accounting for Longevity
Many people underestimate their expected lifespan. The average life expectancy in the United States is just over 78 years with women averaging over 80 years. Of course, within those averages are a lot of Americans who are reaching well into their 90s, thanks to advances in healthcare.
What happens when you only save for 20 or 25 years of retirement, and you outlive those expectations? You may have to drastically reduce your quality of living or pick up part-time jobs to account for that miscalculation. Spouses should also take into consideration the potential lifespan of their partners.
2. Not Accounting for Taxes
Most people underestimate how much taxes can eat away at your retirement savings. The best way to preserve your assets is to work with savings plans that minimize or eliminate taxes.
Certain savings plans like 401(k)s allow you to deduct investments from your taxable income. When you are creating your retirement plan, make sure to include taxes. If you aren’t sure where to start or how to figure out how much your taxes will be, contact your financial planner.
3. Not staying in Shape
"If I had known I was going to live so long, I’d have taken better care of myself.”
This famous quote has been attributed to several people. In that funny quip is some wisdom: The decisions you make now will affect your older self.
Your quality of life should be one motivating factor. Health-related factors can also drain your savings if you aren't careful.
Poor lifestyle decisions can lead to diabetes, kidney problems, or the need for joint replacement and other costly treatments. Part of your financial planning for retirement should include a plan to maintain a healthy diet and lifestyle now and throughout your retirement years.
4. Not Adjusting Your Investments for Age
Retirement planning isn't something you do once and walk away from. Your investments need to be monitored consistently, and the types of investments you make should change over time.
While you are younger, you'll want to make investments that have higher earnings. These investments are often high risk/high reward investments, which you normally can handle best in your early adult years. This helps you build your nest egg. Your middle adult years are a time when making investments with mild to medium risk is beneficial.
As you get closer to retiring, you don't want to worry about financial market volatility. Asset protection measures, like trading in stocks for bonds, can help you lower your risk and exposure to sudden market shifts.
5. Not Accounting for Market Ups and Downs
Market adjustments occur every decade or so. It's a natural part of growth and generally nothing to be worried about since the U.S. economy and stocks have steadily grown over the past century.
One reason why you should work with a financial advisor or planner is to help you navigate those fluctuations. One of the biggest mistakes people make is selling their assets during the worst part of a recession.
Stay the course and let your financial manager advise you if you are unsettled by a lagging or downward trending stock market. Remember, investing is for the long-term, so avoid making rash, reactionary decisions without looking at your financial plan and considering all your options.
6. Not Having a Spending Plan
Do you know how much money you'll need to live on, and maintain your quality of life, when you are 50, 60, or 70? Most Americans haven't thought that far ahead. A retirement plan should include an estimate of living costs when you are in your senior years.
As you reach your retirement years, you'll need to stick to those commitments. Creating a spending plan as part of your retirement plan and budget is the best way to avoid spending too much up front and not being able to maintain your quality of life in your later retirement years. Your spending plan should include the basics such as rent or mortgage payments, car payments, insurance, taxes, groceries, utilities, clothing, etc. but can also include bigger ticket items like going on that vacation you’ve always wanted to, charitable donations, health care expenses, and more.
7. Not Accounting for Poor Health
The future is uncertain. Even perfectly healthy people may face chronic disease, accidents, or unexpected medical costs.
Planning to pay for quality medical insurance is one way to avoid not accounting for poor health in advanced age. This should include long-term care insurance and life insurance on top of your normal health insurance plan. Another factor is the size of your nest egg.
Will you have $20,000 available for unexpected costs that aren't covered by insurance? Prescription bills, for example, can add up.
One study found that seniors pay significantly higher out-of-pocket expenses compared to younger adults. Your financial manager can guide you through the often-complicated process of predicting future medical costs.
Retirement Planning Resources
Retirement planning can give you confidence in retirement. After your plan is set, you will know that you and your family will be taken care of.
At JMB Financial Managers, we specialize in serving business owners, independent contractors, the self-employed, and their families. Our retirement specialists offer customized advice that helps you prepare for the future with confidence. To schedule a meeting with one of our financial managers, please contact our office today.
Additional Resources for Retirement Planning Help
- How to (Legally) Deduct Health and Medical Costs Under QREA Status
- Retirement Planning Video
- Solo 401(k) Qualified Retirement Plan
- Let’s Talk Medicare
- Life Insurance Guide
About the Author
Jack Brkich III, is the president and founder of JMB Financial Managers. A Certified Financial Planner, Jack is a trusted advisor and resource for business owners, individuals, and families. His advice about wealth creation and preservation techniques have appeared in publications including The Los Angeles Times, NASDAQ, Investopedia, and The Wall Street Journal. To learn more visit https://www.jmbfinmgrs.com/.