Planning for retirement and for other financial goals is not an easy task. There are a lot of variables in play when it comes to our financial lives, such as income, savings and spending habits, investment allocation, market behavior, the economy, our emotions, lack of information, and so many others. Because of that, it would make sense that financial mistakes happen. Over the years as a Retirement Strategist, I’ve come across clients that have made some very big financial mistakes. Below, I want to share three of the biggest mistakes that I have seen.
Investing Too Aggressively At Or Near The Point Of Retirement
A big financial mistake that I commonly see is being overly aggressive at or near the point of retirement. The reason why this is such a big mistake is that, for most, retirement is a period of your life where you are no longer generating income. You are relying on the investments and savings that you’ve accumulated during your working years. The last thing you want to do is allow the markets to hurt your chances of a stress-free retirement.
Everyone’s appetite for volatility is different, so there is no one-size-fits-all approach when it comes to how aggressive you should be when nearing retirement. However, it is safe to say that your investments should become less aggressive as you navigate from the early years of accumulating wealth into your retirement years.
When you first start out accumulating your wealth, you have a long time horizon, and most investors have the ability to be more aggressive when beginning to save for retirement. However, as you get closer to retirement prior to entering the distribution phase, you want to adjust your investment allocations to be less aggressive. The reason for this is because you cannot risk letting all of the retirement savings that you’ve worked so hard to accumulate just drop in value close to when you need it most.
When it comes to investing, the time horizon in which you are investing is a very important (if not the most important) factor that must be considered. The longer your time horizon, the more aggressive you can be. You have more time to weather the ups and downs, and over the long run, the stock market (or equities) increases over time. On the other spectrum, the shorter your time horizon, the less aggressive you want to be. The reason for this is because if you have a short time horizon, you need your money soon and cannot risk losing it.
Lack Of Structured Income Plan
Another big mistake that I see is not having a structured income plan when entering into the distribution phase of retirement. This is a big mistake because it devalues the wealth that you just worked so hard to create in your accumulation stage. Without a plan for how you are going to generate income for yourself (and your family) in retirement, you risk the potential for unnecessary tax hits and outliving your money.
Earlier in this article, I discussed the accumulation and distributions phases of retirement in some detail. It is true that you cannot distribute money in retirement if you did not successfully accumulate wealth in your earlier years. However, if you did a great job accumulating wealth, it does not mean that you should not have a plan as to how you will be distributing your wealth in retirement. With all the different types of accounts and investments that have the potential for generating income, such as 401(k)s, IRAs, taxable accounts, pensions, Social Security, annuities, life insurance, etc., it would be careless to not have a clearly defined plan.
Not Customizing Social Security Strategies
A final big financial mistake I want to highlight has to do with Social Security strategies. This is a big mistake because if you are not using a customized strategy for Social Security, you are most likely leaving plenty of Social Security money on the table.
First, the timing of when you take Social Security is important. The earlier you take it, the less amount of benefits you will receive. Everyone will be different, so considering when to take Social Security should be a decision based on your goals, needs, and preferences. For example, if you wanted to retire next year at age 65, you’d be faced with the decision of when to take Social Security. If you take it at age 65, you will receive less Social Security income than if you waited until age 68. If you still wanted to retire at age 65, one potential strategy would be to work part-time or consult for three years and then take Social Security at age 68. In addition to working part-time, you can also cut expenses or find a way to generate a small amount of income for those three years. By waiting until age 68, the lifetime benefits of Social Security income will be much more than if you had taken it early at age 65.
Another aspect of this has to do with your situation. Specifically, are you single, married, divorced, or widowed? For each situation, there may be a different strategy when it comes to Social Security. It is important to be aware of this and make sure to customize how you go about utilizing Social Security during retirement.
Do What You Can To Avoid These Mistakes
Planning for retirement and investing, in general, is not always a simple answer. In fact, it can be very complicated at times, and the best approaches tend to be customized around an individual’s specific needs, preferences, and goals. Hopefully, the mistakes I’ve highlighted above provide insight into what to watch out for when thinking about your retirement. If you’d like to discuss how D. Bryant Retirement Strategies can help you take steps today so you don’t make these mistakes, please call us at (402) 932-2141 or email firstname.lastname@example.org.
Darrell Bryant, CFS®, CAS® is Omaha’s Retirement Strategist. As the founder of D. Bryant Retirement Strategies, he focuses on helping individuals and couples nearing retirement do so successfully. Along with more than 30 years of experience, he received the Certified Fund Specialist (CFS®) designation and a Certified Annuity Specialist (CAS®) designation from the Institute of Business & Finance. Passionate about helping as many people as possible in his community, he hosts Retirement Strategies Radio, heard Saturday mornings at 8 a.m. on 1110 KFAB. He has also written articles on financial planning that have been featured on Fortune.com, FoxBusiness.com, Money.com, and in the Midland Business Journal. To learn more, visit his blog, his website, or connect with him on LinkedIn.