Retirement is inevitable for most of us, but adequate planning for this event can still go overlooked. Many people spend years behind a shadow of the assumption that someday, they’ll retire and still have enough money to maintain a comfortable lifestyle.
Unfortunately, the individuals that retire without a plan and a clear list of financial goals often find themselves in a vulnerable position at the end of their lives. Saving for retirement can be both confusing and intimidating, but with the right guidance retirement planners and insurance advisors can help clients avoid common money mistakes that often land retirees in trouble.
1. Anxious Avoidance
The first mistake that many individuals make is to bury their heads in the sand, and avoid writing down their financial goals pertaining to retirement. Without planning, there are no concrete figures to strive for. Recently the Employee Benefits Research Institute revealed that a startling 48% of respondents on their Retirement Confidence Survey reported that they had not computed the amount of money that they will need when retirement rolls around.
Procrastinating on a measurable and specific plan of action is to court disaster. Spending even the smallest amount of time to consider and write down goals can be highly beneficial -the Harvard Business School once conducted a 30-year follow-up study with eye-opening results. Those who wrote down clearly defined goals earned 10 times the amount of those individuals who didn’t. Committing financial goals to written memory is an exercise in self-awareness, one which helps establish a clearer understanding of one’s financial situation as well as an incentive to pursue ongoing financial education.
2. Being Overly Cautious
Many individuals have heard the common adage that investors should be more aggressive when they are young and switch to a conservative investment style as they near the age of retirement. While the first part is generally true, some financial advisors will become too cautious with their clients during those last years of the investment phase. They may advise moving from a portfolio that has a higher amount of exposure to stocks to investments that are based around fixed income instruments.
This recommendation may not be the best advice for retirees, as many people will be retired for as long as they were actively working. Moving too aggressively from a portfolio of stocks to bonds could severely cut the gains that could be received if a bull market emerges during a person’s retirement years.
3. Underestimating the Impact of Taxes
The actual investments that individuals make when they plan for retirement are often not as important as the type of accounts that are used. Individuals who believe that their tax bill will be reduced after they retire are in for a rude awakening if they haven’t planned for taxes.