Seven big financial mistakes in retirement planning
December 13, 2013
by Brian Wolf

In retirement, as in skydiving, when you make a mistake, it's a lot harder to recover. This was the headline in a recent USA Today article. I found the article interesting, so I thought I would share it with you along with some of my thoughts.

Rookie mistakes abound when you try pretty much anything for the first time. So, why should retirement be any different? It’s just that in retirement, as in skydiving, when you make a mistake, it's a lot harder to recover.

Here are the seven biggest mistakes that the article describes.

1. Not having a financial or life plan. Obviously, this is one that I’m going to agree with. With nearly 30 years in this business I know firsthand the perils that people face when they try to plan for retirement without a good advisor. The article also refer to a survey by the Employee Benefits Research Institute, where they found that only 42 percent of workers try to calculate a budget before going into retirement. I would strongly suggest that everyone have an idea of their budget before they move into retirement.

2. Overspending. Most of the people I meet with think they will spend less in retirement, but then find themselves spending more. I think the reason for this is that they just have a lot more time on their hands, and eating out or going on trips becomes a bigger desire. Another common misconception might be that your taxes will be less in retirement. You might want to re-think that one also.

3. Claiming Social Security too early. Maybe the biggest and most common mistake of all is taking your Social Security too early. It’s a big temptation to draw on it as soon as possible because after all you have paid in your entire working life, isn’t it time to see some of the benefits? But most people don’t know that for every year you wait between 66 and 70, your Social Security is increasing at 8 percent a year. In a lot of scenarios, people should be waiting.

4. Being too conservative with investments and not considering inflation. OK, now this one I will disagree a little bit with. I don’t really think you can be too conservative with your retirement investments. Too many people get confused and think that you have to have risk in order to get good returns, and that simply isn’t always true.

For example, if the bank paid 7 percent interest in a savings account, would you really want to keep your retirement money in a stock or mutual fund? So maybe the challenge is finding the best safe investments that will beat inflation and not take the unnecessary risks.

5. Retiring too early. The article states the following “Sixty-nine percent of people plan to earn some money after they retire, but only 27 percent report that they have worked for money after retirement,” Kisner says. “Typically, you might be at a job making $80,000. You can't come close to replacing the income. For every year you continue to work between 62 and 70, you increase your probability of success (in retirement) by 10 percent.”

I would just add this, when you look at the best case and worst case possibilities in retirement, plan on the worst case and then retire accordingly. I’ve never had anyone tell me that they saved too much money for retirement.

6. Underestimating life expectancy. “One that is really interesting to me, is underestimating life expectancy or longevity,” Dean says. “We’re seeing people live much longer. The Employee Benefits Research Institute (EBRI) is currently reporting that half of men who hit age 65 will have additional life expectancy of more than 17 years, and women, another 21 years. We see people now living into the hundreds.”

I personally don’t put much faith in life expectancy tables; I just suggest that everyone plan on being around for a long time.

7. Not having a health care strategy. Everyone knows that health care costs are expensive. The only thing we don’t know is who is going to be paying for it in the future. With Obamacare still up in the air, no telling what that will look like in the future. I strongly suggest that you plan on having to pay more for health care, and also plan on how you will take care of your long-term care costs, as well.

As you might guess, retirement planning is crucial to your long-term financial security. Make sure you get good advice before you make important decisions.

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