15 Costly retirement mistakes

15 Costly retirement mistakes… Retirement is a major milestone for many Americans. Retiring marks the end of your working life and the beginning of a new chapter. As a financial advisor, I help my clients avoid mistakes and retire with confidence and peace of mind.  Together, we build a solid roadmap to retirement and a game plan to achieve your financial goals. My role as a financial advisor is to provide an objective and comprehensive view of my client’s finances.  As part of my process, I look for any blind spots that can put my clients’ plans at risk.  Here is a list of the major retirement mistakes and how to avoid them.

1. Delaying and procrastinating

Not planning ahead for retirement can cost you a lot in the long run. Delaying to make key decisions is a huge retirement mistake that can jeopardize your financial security during retirement. Comprehensive financial planners are more likely to save for retirement and feel more confident about achieving their financial goals.  Studies have shown that only 32% of non-planners will likely have enough saved for retirement versus 91% of comprehensive planners.

Reviewing your retirement plan periodically will help you address any warning signs. Recent life changes, economic and market downturns, or changes in the tax law could all have a material impact on your retirement plans. Be proactive and never get caught off guard.

2. Not asking the right questions

Another big retirement mistake is the fear of asking the right question. Avoiding these

Here are some of the questions that my clients are asking –

• “Do I have enough savings to retire?”
•  “Am I on the right track?”.
• “Can I achieve my financial goals?”
• “Can I retire if the stock market crashes?”.
• “Are you a fiduciary advisor working in my best interest?”

Asking those tough questions will prepare you for a successful retirement journey. Addressing your concerns proactively will take you on the right track to meeting your priorities and achieving your personal goals

3. Not paying off debt

Entering retirement with significant debt can hinder your ability to enjoy your golden years. Paying off debt can be an enormous burden during retirement. High-interest rate loans can put a heavy toll on your finances and financial freedom. As your wages get replaced by pension and social security benefits, your expenses will remain the same. If you are still paying off loans, create a plan to lower your debt and interest costs. Being debt-free will reduce the stress of losing viable income.

4. Not setting goals

Having goals is a way to visualize your ideal future. Not having goals is a retirement mistake that can jeopardize your financial independence during retirement. Without specific goals, your retirement planning could be much harder and painful. With specific goals, you have clarity of what you want and what you want to achieve. You can make financial decisions and choose investment products and services that align with your objectives and priorities. Setting goals will put you on a successful track to enjoy what matters most to you.

5. Not saving enough

An alarming 22% of Americans have less than $5,000 in retirement savings. The average 401k balance, according to Fidelity, is $118,600. These figures are scary. It means that most Americans are not financially ready for retirement. With high interest rates, sticky inflation, and constantly rising healthcare costs, future retirees will find it difficult to replace their working-age income once they retire. Fortunately, many employers now offer some type of workplace retirement savings plan such as 401k, 403b, 457, TSP, or SEP IRA. If your employer doesn’t offer any of those, you can still save in a Traditional IRA, Roth IRA, investment account, or the old-fashioned savings account.

6. Relying on one source of retirement income

Many future retirees are entirely dependent on a single source for their retirement income, such as social security or pension.  Unfortunately. With social security running out of money and many pension plans shutting down or running a huge deficit, the burden will be on ourselves to provide reliable income during our retirement years.  If you want to be financially independent, ensure your retirement income comes from multiple sources.

7. Lack of diversification

Diversification is the only free lunch you can get in investing and will help decrease the overall risk of your portfolio. Adding uncorrelated asset classes such as small-cap, international, and emerging market stocks, bonds, and commodities will reduce the volatility of your investments without sacrificing much of the expected return in the long run.

A common mistake among retirees is the lack of diversification. Many of their investment portfolios are heavily invested in stocks, a target retirement fund, or a single index fund.

Furthermore, owning too much of one stock or a fund can significantly affect your retirement savings. Just ask the folks who worked for Enron or Lehman Brothers and had their employer’s stocks in their retirement plans. Their lifetime savings were wiped out overnight when these companies filed for bankruptcy.

8. Not rebalancing your investment portfolio

Regular rebalancing ensures that your portfolio stays within your desired risk level. While it may be tempting to keep a stock or an asset class that has been on the rise, not rebalancing to your original target allocation can significantly increase the risk of your investments.

9. Paying high fees

Paying high fees for mutual funds and high-commission insurance products can eat up a lot of your return. Investing in low-cost investment managers that can produce superior returns over time is crucial. If you own a fund that has consistently underperformed its benchmark,  maybe it’s time to revisit your options.

Many insurance products, like annuities and life insurance, while good on paper, come with high upfront commissions, annual fees, surrender charges, and restrictions. Before signing a contract or buying a product, make sure you are comfortable with what you will pay in the future.

10. No budgeting

Adhering to a budget before and during retirement is critical for your confidence and financial success. When balancing your budget, you can live within your means and make well-informed and timed decisions. Having a budget will ensure that you can reach your financial goals.

11. No tax planning

Not planning your taxes can be a costly retirement mistake. Your pension and social security are taxable. So are your distributions from 401k and IRAs. Long-term investing will produce gains, and many of these gains will be taxable. As you grow your retirement savings, the complexity of assets will increase. Therefore, the tax impact of using your investment portfolio for retirement income can be substantial. Building a long-term strategy focusing on taxes can optimize your after-tax returns when you manage your investments.

12. No estate planning

Many people want to leave some legacy behind them. Building a robust estate plan will make that happen. Whether you want to leave something to your children or grandchildren or make a large contribution to your favorite foundation or estate, financial planning is important to secure your best interests and maximize the benefits for yourself and your beneficiaries.

13. Not having an exit planning

Sound exit planning is crucial for business owners. Oftentimes, entrepreneurs rely on selling their businesses to fund their retirement. Unlike liquid investments in stocks and bonds, corporations and real estate are a lot harder to divest.  Selling your business may have serious tax and legal consequences. Having a solid exit plan will ensure a smooth transition of ownership, business continuity, and optimized tax impact.

14. Not seeing the big picture

Between our family life, friends, personal interests, causes, jobs, real estate properties, retirement portfolio, insurance, and so on, our lives become a web of interconnected relationships. Above all, you are the primary driver of your fortune. Any change of this structure can positively or adversely impact the other pieces. Putting all elements together and building a comprehensive picture of your financial life will help you manage these relationships in the best possible way.

15. Not getting help

Some people are self-driven and do very well by planning for their retirement. Others who are occupied with their career or family may not have the time or ability to deal with the complexities of financial planning. Seeking help from a fiduciary financial planner can help you avoid retirement mistakes. A fiduciary advisor will watch for your blind spots and help you find clarity when making crucial financial decisions.