To their dismay, many people are discovering that this is no longer their parent’s retirement. To a great extent, our parents, and indeed our grandparents, did not face the level of rising retirement costs and increasing life expectancy we face today. Many had access to pensions, so they did not have to rely on their own assets for retirement income. From a planning perspective, they had a more considerable margin of error than their children and grandchildren for ensuring lifetime income sufficiency.
Today, with people living 25 or more years in retirement, there is no room for error. The mistakes people make leading up to retirement can be challenging to overcome if not caught early. Avoiding these common retirement planning mistakes is crucial if you are going to have any chance at lifelong financial security.
Retirement Planning Mistake #1: Not clearly defining your retirement ambitions
When planning for retirement, many people make the mistake of simply setting a target date and determining a number they think they need to achieve to retire comfortably. However, knowing the numbers provides little motivation to adhere to an investment strategy.
Planning for your retirement is more than just knowing the numbers. It’s about having a clear vision of what you want to accomplish in retirement—how you will spend your time and expect to achieve the fulfillment that eludes many retirees. Without a clearly defined life ambition, the numbers have less meaning and motivation.
Retirement Planning Mistake #2: Not knowing where you are in relation to your goals
Setting financial goals is essential to know what you are aiming for. However, the last few years have taught us things can change quickly. A grave mistake many people make is setting their retirement goals and plans and forgetting them. Wild market swings and economic distress can cause retirement targets to shift, and without making necessary adjustments, your plan can go way off course.
It’s essential to revisit your plan frequently to know where you stand in relation to your goals, making adjustments along the way according to your changing circumstances. When done regularly, the adjustments needed to keep you on track can be small.
Retirement Planning Mistake #3: Lowballing retirement costs
The cost of retirement is increasing at a faster rate than most people realize. Between today’s rising inflation and growing healthcare costs, retirees can no longer expect to spend substantially less in retirement than in their working years. You can get ahead of it if you go into retirement debt-free and downsize certain aspects of your lifestyle. However, having a realistic spending plan going into retirement is critical while building up sufficient reserve funds to smooth out unexpected bumps in expenses.
Retirement Planning Mistake #4: Not accounting for all the risks in retirement
There is an unhealthy focus on investment performance among those planning for retirement. So, as the markets turn scary, as they have recently, the tendency is to “reduce” their risk by moving their money into “safe” investments.” The biggest risk retirees face is the prospect of outliving their income. Investing too conservatively increases that risk.
The focus on market risk detracts from the more significant dangers of inflation and longevity, which are inevitable. Markets will rise and fall, but they have historically trended higher over time. You can control market risk through a properly allocated and diversified retirement portfolio. It’s also the most effective way to mitigate the impact of inflation and work to make sure your investments keep pace with the loss of purchasing power.
Retirement Planning Mistake #5: Trying to go it alone
Planning for lifetime income sufficiency can be daunting. There are so many factors and variables that come into play in a retirement plan, with more moving parts than the average person can fully understand.
You need to be able to match your objectives and risk profile to the right mix of investments with a strategy you can stick to with conviction. You need to make the proper adjustments to your portfolio based on changing circumstances. You need to ensure you’re focused on achieving optimum tax efficiency for your retirement income.
Perhaps the biggest mistake many people make is to try to muddle through on their own. The experienced guidance of a high-quality, independent financial advisor can put you on the right course for a successful retirement. In addition to helping you make the right investment decisions, their most important function is to try and avoid costly mistakes that can set you back.
Do you want to live the retirement you’ve always dreamed of? We’re here to help. Contact us today to learn more.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Caviness Wealth Management, LLC, a Registered Investment Advisor and separate entity from LPL Financial.
