Why are people making mistakes in retirement planning when there are so many different financial planning vehicles out there today?
Because they get confused. I guess it’s the old story about the more information you get, the easier it is for you to mentally lock up.
When I was in college I had a Mazda 323. One day I thought I was doing a good thing that turned out not so good … I bought a couple cans of Quaker State. Now, my car didn’t say it was low on oil, but being a freshman in college and not a car guy, I figured it was better to have too much oil in the engine than too little. So, I put oil in the car when it didn’t need it, and guess what happened? I overloaded the engine with oil, which is just as bad as not having enough oil, and resulted in me needing to put a new engine in my car. Basically, it locked up from of the excess oil I had generously force-fed the engine.
What does this have to do with the financial world, you may be asking? Well, these days there’s way too much information available. When it comes to planning, clients think they can do it themselves, but then all they do is procrastinate. They simply don’t have the knowledge necessary to complete the process of proper planning to insure a worry-free retirement.
I have encountered some folks who did a good job building their own plan, but it’s usually after consulting with the right financial professionals, getting the right information and getting rid of all the bad information that exists today. The secret is not collecting information but whittling out the bad and/or misinformation from the good.
It’s like planting a garden
You could get a pack of seeds, let’s say squash seeds, because summer squash grows very easily and quickly. If you throw all the seeds into one hole, all of them will most likely sprout. But if you don’t thin them out, none of them will grow and flourish. You need to get rid of the bad stuff for the good stuff to thrive.
I recently read “The Crisis in Retirement Planning” in the Harvard Business Review and many of the issues they mention, I see daily. We have a tendency to look at assets versus income, which the Review identified as a very big problem.
What exactly does that mean? Well, if somebody looks at their accounts and says, “I’ve got a million dollars. I’m a millionaire,” my response is, “That’s great. How are you going to get income from that million in retirement?” Most don’t have an answer because they don‘t know. They seem to think having a million dollars saved for retirement is all they need.
Nothing could be further from the truth.
My good buddy and author Tom Hegna has been pounding the table for years, traveling around the country attempting to educate and warn folks about mistakes made in retirement planning. To this day, one of Hegna’s quotes that always comes to mind is: “Success in retirement has nothing to do with assets, and everything to do with guaranteed lifetime income.” This is so true and refreshing to see it put so eloquently.
Here’s what usually happens: That million dollars clients have when they reach the finish line we call retirement — which I also call “30 to 50 years of unemployment” — now has to be their income. Picture your clients in retirement with that lump sum of money sitting in the corner. Each day they have expenses so they take some money from that pile. This goes on month after month, year after year, and pretty soon that pile has disappeared.
The pile has to be replenished on a regular basis, and that’s where people get lost. They forget about something called retirement income planning. As a matter of fact, the American College has a new designation built around this. It’s called RICP: Retirement Income Certified Planner.
Income, not assets, are what will separate your clients in retirement from the haves and the have-nots. If they don‘t have an income plan now, they need to. I’ve talked to several people in their 60s, and I hear this way too often: “We’re not worried about that yet … we’re not close to retirement.” My response is, “Perfect, because the best time to start planning your income for retirement is when you don’t need the income stream tomorrow.”
Now, to those already in retirement who don’t have a true income plan assembled, there is no better day than today to get it done. Putting it off until tomorrow is not going to make the plan any better.
Remember, the most important thing is converting some of those assets into income. Some of the biggest mistakes made by folks approaching retirement are not caused by what they do, but rather by what they don’t do.
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