Failing to plan is a plan for failure

Gaynes Financial Services Inc., an independent financial services company in Atlanta, Ga., offers 10 common retirement mistakes that could derail your clients’ retirement plans.

1. Planning for an average life expectancy. If you only plan for an average life expectancy, by definition you have a 50 percent chance of being wrong.
2. Failing to adequately account for inflation. Even at mild inflation, you lose about one-third of your purchasing power every 10 years. When you factor in today’s longer life expectancies, a successful strategy needs to at least double, and possibly triple, your clients’ incomes during retirement; otherwise, they may be forced to decrease their standard of living.
3. Not understanding the “70 1/2 tax trap.” Forced distributions from IRAs and 401(k)s at age 70 1/2 can force retirees into a higher marginal tax bracket and cause up to 85 percent of their Social Security benefit payouts to be taxed.
4. Not having investments properly diversified. Proper diversification is one of the best strategies for protecting your clients’ assets.
5. Withdrawing from growth investments in down years. If your clients have to withdraw money from growth-oriented investments during the inevitable “down” years, the odds are overwhelming that they will not be able to recover their original principal.
6. Not being financially prepared for a long-term care need. A significant need for long-term care is the biggest risk to a retiree’s nest egg. According to the Center for Retirement Research, after factoring in health care costs and long-term care expenses, 64 percent of people 65 or older may be forced to downsize their lifestyle in retirement.
7. Withdrawing too much income from your investments. Studies indicate that any withdrawal rate higher than 5 percent increases the risk of your clients depleting all their assets before the reach their average life expectancy.
8. Not rolling employer retirement plans to a personal IRA. By rolling an employer’s retirement plan into an IRA, you can gain greater investment control, and give your clients and their beneficiaries the potential for more guarantees and greater account protection. Additionally, beneficiaries gain significant advantages for continued tax deferral after your clients’ death.
9. Using average rates of return. It is quite common to see individuals and their advisors using average rates of return when doing retirement projections. What most people don’t understand is that these average returns are based on a “buy and hold” scenario. If an individual was withdrawing from this same investment, his or her return could be dramatically different from the “buy and hold” return.
10. Not having a plan to accomplish your goals. Most people don’t understand how complex retirement planning really is. People don’t plan to fail, they just fail to plan. Having a well-thought out retirement plan can greatly increase the probability of achieving your goals.