As retirement time approached, I did what most people do. I put more thought into planning my retirement party than my actual retirement.
Fact is, as retirement nears, there are tons of things to think about, like when to take Social Security, how much to take out of your 401(k), creating a spending plan you can stick to and how to invest your retirement savings.
Here are five retirement planning mistakes I made, along with simple things you can do to avoid them.
Mistake number 1: failing to plan
I managed my own savings my entire working life. It wasn’t complicated: Take a little money out of every paycheck, put it into a 401(k), then divide it into a few mutual funds. Easy peasy.
But as I approached retirement, it hit me: I had a lot of stressful stuff to consider, like when to take Social Security, how to shift my investments from growth to income, how to reduce my income taxes, creating an estate plan; just a few of the myriad variables I had to deal with, and you will too.
You’ll also realize that the stakes are high, because tiny decisions, or indecision, at this point in your life can lead to life-altering consequences down the road.
The fix
If there’s one time in your life you could use professional advice, this is it.
Don’t do what I did and be penny-wise and pound-foolish.
These days there are no-cost online services that make finding a qualified financial adviser a snap. You fill out a short questionnaire, then get matched with up to three local fiduciary financial advisers, each legally bound to work in your best interests. The process only takes a few minutes, and in many cases you can be connected instantly with an expert for a free retirement consultation.
If you’ve got $100,000 or more in savings, Use this free matching service to connect with three qualified financial advisers in your area. Talk to them. Get some ideas. Get a free review.
You’ll slash your stress and build a ton of confidence.
2. Mistake number 2: Procrastination
According to a recent survey by Bankrate.com, the biggest financial regret is not saving enough for retirement. And why don’t Americans save enough? Because they put it off, saying some variation of, “I’ll wait till I have more money”, or “I’ll start when I get closer to retirement.”
That’s another mistake I made. If I could do it over again, I’d have gotten serious about retirement way sooner.
The fix
If you’re behind on retirement savings, a meet with a financial planner. They’re going to be able to help you catch up and figure out how much you’ll need to invest to meet your goals. In addition to investing for your future, a financial adviser can offer guidance on budgeting and paying off debt.
And while there’s obviously no guarantee, if an adviser can increase your returns, it could make a big difference. Consider this: if you save $500 a month for 40 years and earn an average annual return of 5%, you’ll end up with nearly $725,000. Double that return to 10%, and you’ll retire with almost $2.7 million. That’s a life-changing difference.
Again, there’s no guarantee a professional adviser is going to do better than you could on your own. But as I just illustrated, tiny things can make a huge difference in your life.
Mistake number 3: Retiring too soon or not soon enough
If you are thinking about retiring soon, you may dream of quitting your job and traveling the world. However, before you call it quits, there are a number of reasons you may want to think things over. What if you live longer than you expect? What if you run into health issues, or face tough financial times that force you to cut back?
I made the opposite mistake: I was so afraid of running out, I worked longer than I needed to. I wasted a couple of years working when I could have been lying on the beach.
The fix
Long before you’re nearing retirement, meet with a financial planner to determine the optimal time to retire based on your personal situation. If you’ve got at least $100,000 in savings, odds are you’ll be able to get a free first appointment with an expert. How could that possibly be wrong?
4. Mistake number 4: Hiring the wrong adviser
As my retirement loomed, I finally realized I was an idiot for not getting some professional advice. But then I made another boneheaded move: rather than shop around, I got a referral from my brother-in-law. Result? She turned out to be as clueless as I was.
Like any group of professionals, not all are created equal. Hire the wrong adviser and you could end up worse off than when you started.
The fix
When it’s time to find someone to assist you, talk with a few. Ask a similar list of questions, including how they get paid and how long they’ve been in the business. Always deal with a fiduciary: a planner who’s legally bound to put your interests above their own.
In short, assess their qualifications and advice before making a decision.
Start with this free financial adviser matching tool, to match you with up to three qualified financial advisers in under five minutes. Every adviser will be a vetted fiduciary.
5. Mistake number 5: Taking too much risk, or not enough
Risk is a funny thing. Take too much and you can lose your savings. But take too little and you can lose purchasing power to inflation.
The money you retire with is money that can’t be replaced. That’s why I initially leaned too much on low-risk, low-return investments as I approached retirement. But as you’ve learned in recent years, as inflation erodes the value of money, your seemingly safe nest-egg drops in value in terms of what it can buy.
Bottom line? Often, taking no risk presents risks of its own.
The fix
Investing, both before and after retirement, is about balance: harnessing investments designed to keep your income flowing, inflation hedged and risks manageable. Your strategy will require safe, guaranteed-income investments, as well as some exposure to stocks and other inflation-protected investments.
Maybe you can do it yourself, but why not at least talk to an investment professional for some advice and guidance, both pre and post-retirement. Remember, first appointments are free and are a great way to get a second set of expert eyes. Nothing to lose, lots to gain.
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