Layin’ It on the Line: 5 common mistakes nearly everyone makes when planning for retirement
I originally wrote about this topic in February 2019, and it seemed so pertinent to the topic then. It was very pertinent and now it is even more so. Recently, during my daily business meetings, I am seeing the same thing repeatedly. I have made a few updates to the article for you, but, the underlying issues are still there. Why are we continuing making them when we plan for our retirement?
You may have been told by a well-meaning parent, friend or financial advisor that you should “Save at least 10% of your money for retirement.” This rule of thumb gives those of us with no idea where to begin planning some initial guidance, but it is by no means applicable to every person and circumstance.
A question I often ask people is, “Do you believe that saving just 10% will be enough to finance the retirement you want?”
For most people, the answer to this question is, “No,” especially for those who fail to start planning early. The later you decide to start saving and the more money you make, the more you will need to save. It is also even more critical for you to avoid making mistakes with your money from which you will not have time to recover, and which will severely impact your post-career life.
Over the years, I have uncovered dozens of common mistakes in retirement planning that have the potential to derail even carefully thought out plans. Becoming aware of these pitfalls and strategizing to avoid them will go a long way toward helping you craft a retirement that is less stressful, more prosperous and highly enjoyable.
Here are a few of the most common things that nearly everyone fails to take into account when thinking about retirement:
1. Failing to visualize a long life. The Social Security Administration says that statistically, 1 out of 4 65-year-olds will live past the age of 90. That sounds great, I know, especially if you are still active and engaged in life like Warren Buffett (91) or Clint Eastwood (92!). Just remember that if you retire at 65, and your life expectancy may be 90 or more, you will have to provide income for 25 more years and add additional income to provide for inflation. Have you saved enough to cover the possibility of a long life?
2. Failing to plan for health care costs. An astonishing number of Americans I meet are of the mindset that once they turn 65 and enroll in Medicare, their health care will be free. What seems never to be considered is the out-of-pocket expenses we pay in addition to Medicare. The other big error when looking deeper at out-of-pocket medical costs is dental care. Very few people consider the expenses and yet, even routine dental care may affect what funds are available for retirement.
3. Failing to factor in the impact of debt. Most retirees with whom I speak say they’d like to spend their retirement years living in their same homes. Unfortunately, though, the number of people over 60 who still have mortgages is growing every year, as are the average balances of those mortgages. Are you working toward eliminating all or most of your debt before you retire, especially consumer debt?
4. Failing to understand the “sequence of returns.” Many pre-retirees and retirees have their wealth invested in assets that may be exposed to market volatility. Simply stated, the sequence of returns is when the market becomes volatile, important retirement assets may be reduced in value when most needed.
5. Inflation. Inflation in the past simply snuck up on us; not any more. Inflation is over 9% this past 12 months and seems to be unstoppable. You must build this statistic into your planning. Otherwise, in the future, retirement may not be the “Golden Years” you have expected.
In summary, the future is never known. All we can rely on is what has happened in the past. Remember, everyone runs to safety at some time in their lives. Maybe it is you time to rethink safety and security in your retirement planning.
Lyle Boss is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. Boss Financial, 955 Chambers St., Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.