Our topic on this episode of the Ready for Retirement podcast is about the top 5 avoidable retirement mistakes (and how you can avoid them).
Questions answered: What are the most common retirement mistakes? How can I ensure I have a secure retirement? What is the best approach for my individual situation?
Are you ready to start focusing on the things that truly matter when it comes to your financial future?
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- Why I Tell Clients To Spend More
- I’m often telling clients they need to spend more. This seems odd as a financial planner, but there’s a tendency to not spend much because one is naturally unsure if they are in a position to do so. Because of this, they err on the side of being too conservative.
- This isn’t necessarily a bad thing, but it can be a bad thing if it causes you to miss out on what’s most important to you in retirement.
- The biggest fear for most individuals nearing retirement is the fear of running out of money. The fear they don’t feel today but may feel in the future without a proper plan is a fear of regret.
- If you go through retirement and realize you have a lot of money let over, you’ll be wondering what else you could have done.
- What could you do while you still have your health, vitality, and energy?
- When working with clients, I like to look at what the threshold for clients is without worrying about running out of money too early?
- I’m often telling clients they need to spend more. This seems odd as a financial planner, but there’s a tendency to not spend much because one is naturally unsure if they are in a position to do so. Because of this, they err on the side of being too conservative.
- How Much Can You Spend In Retirement
- Check out Episode 27: How Much Can I Safely Spend In Retirement?
- Check out Episode 64: Here’s the Mindset Shift People Struggle to Make in Retirement
- Retiring at the wrong time
- When I discuss retiring at the wrong time, this is when one retires earlier or later than their plan allows for.
- You would be amazed at what a few years of extra work will do to your retirement projections.
- It may not seem like a few years would make a significant difference, but one extra year of work is an extra year of Roth IRA contributions / 401(k) contributions / Social Security and an extra year where your portfolio can compound for you as opposed to being drawn down.
- It may be one year of delaying Social Security.
- It may not seem like a few years would make a significant difference, but one extra year of work is an extra year of Roth IRA contributions / 401(k) contributions / Social Security and an extra year where your portfolio can compound for you as opposed to being drawn down.
- Oftentimes people work too long because they want to ensure they don’t run out of money.
- This isn’t a bad thing on paper, but what did you sacrifice to do this? If you’re still able to do all of the things you want to do, continuing to work may be just fine.
- This is where having a plan in place allows you to know if your assets are able to keep up with living expenses and ensure you don’t outlive your money.
- This isn’t a bad thing on paper, but what did you sacrifice to do this? If you’re still able to do all of the things you want to do, continuing to work may be just fine.
- Focusing On One Risk
- The first thing that comes to mind when people think about retiring is often the stock market.
- This is a tremendous risk in retirement, but it’s only one type of risk.
- Oftentimes people focus solely on this risk and fail to recognize other risks and how that may impact their retirement.
- Sequence of Return Risk
- What if I retire and have to pull funds from my portfolio when the market is down?
- Far too often individuals protect against this risk by adjusting their portfolio to a conservative mix and subjecting themselves to another risk.
- The second risk is inflation risk.
- The erosion of our purchasing power. It’s not just the value of our account but how we maintain our purchasing power at age 60.
- Example
- If you retire at age 60 and want to live on $100,000/year, you would need close to $250,000 to be able to maintain your current expenses.
- Note: living expenses tend to increase less than inflation.
- If you retire at age 60 and want to live on $100,000/year, you would need close to $250,000 to be able to maintain your current expenses.
- Protecting too much against the short-term risk can lead to a greater long-term risk.
- So, how do we generate $100,000 of income to retire comfortably and not worry about running out of money?
- What if I retire and have to pull funds from my portfolio when the market is down?
- Our Own Worst Enemy
- Individuals often make very emotional decisions to chase what’s hot and can get caught up by market trends that cause them to derail their ability to retire.
- The first thing that comes to mind when people think about retiring is often the stock market.
- Supporting Adult Children
- Typically a client calls and says “I want to pull funds to buy Real Estate” and after we work through mortgage, interest, property taxes, realtor fees, etc. I ask “What do you think you can rent it for?”. And the client responds with “I don’t want to rent it, this is for my children”.
- There’s absolutely nothing wrong with this approach if you have the means to do it.
- But, let’s not disguise support for adult children as an investment and only support them once we know how this ultimately impacts the overall financial plan.
- Not everything in life is about generating the most return, but it’s about aligning your money with your values.
- There’s absolutely nothing wrong with this approach if you have the means to do it.
- Typically a client calls and says “I want to pull funds to buy Real Estate” and after we work through mortgage, interest, property taxes, realtor fees, etc. I ask “What do you think you can rent it for?”. And the client responds with “I don’t want to rent it, this is for my children”.
- Not Having A Strategy
- You may have enough in investments, but haven’t taken the time to put together a tax-efficient withdrawal strategy.
- You may have a pension, but elected the option that results in hundreds of thousands of dollars in lost value should you have chosen the alternative option.
- You may have the lowest expense ratio and lowest-fee fund, but it may not be the right investment for you.
- Working With Us
- Check out our website RootFinancialPartners.com for more on our services and how we help individuals reach their retirement goals.
Timestamps
3:31 – Outliving Our Money
5:49 – What is a Sustainable Withdrawal Rate?
9:27 – What Years Are Most Expensive?
12:04 – How Long Does Your Plan Need To Last?
15:05 – Living Expenses & Inflation
18:34 – Real Estate Investing
21:05 – Legacy Planning
23:47 – Aligning Your Investments With Your Financial Goals
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