Retirement Planning Mistakes (part 2)
In the last blog post, we started listing the retirement planning mistakes we see many people making (until we start working with them, of course!). My colleagues at JPFP started the list inspired by the fact that Richard Thaler was awarded the Nobel Prize in economics for his work in the arena of behavioral economics, a relatively new field. See how many of these you’re making:
- Overspending during working years so you don’t have enough to set aside for retirement and or get used to a high level of spending in retirement that is un-sustainable
- Waiting too long to start saving for retirement so you don’t benefit from the miracle of compound earnings
- Not taking the time to shift your mindset from savings to spending
- Thinking that retirement is far off in the future; the siren song of “Someday I’ll start saving for retirement” is wickedly dangerous.
- Not believing that you can save enough for retirement
- Not spending enough time thinking about why retirement is important. What are your goals in retirement?
- Not including your partner in your planning, especially when it comes to setting retirement goals
- Investments don’t align with objectives or poor investment choices.
- Saving for children’s’ college costs instead of saving for your retirement first
- Not saving enough in your employer’s savings plan to earn the maximum match
- Planning on claiming Social Security too early
- Ignoring the effects of inflation on your retirement spending plans; Linda Lindsay CFP®, one of our advisors, likes to remind clients that many of our expenses increase due to inflation that we might not even thing of; for example, property taxes increase every year and you may not even notice.
- Assuming you will work in retirement (most retirees don’t)
- Starting to plan too late
- Not having enough cash on hand when you retire so you can ease into the new phase of your life (we recommend at least two years of living expenses in cash before you retire)
- Over-estimating investment returns before and after you retire (think 7% maximum before you retire and 5% when you are retired)
- Planning on withdrawing too much from your investments when you retire (3.5% is a good place to start)
- Buying an annuity in an IRA (main value of an annuity as a savings vehicle before you retire is that earning are tax-deferred, which is what an IRA is anyway so you are paying high cost for a benefit you don’t need!)
- Ignoring the high cost of long-term care in your retirement plans
- Assuming you will be able to retire when you want. Research shows that many people actually retire sooner than they want due to poor health or job loss.
Pretty long list, isn’t it? So if you see yourself making three or more of these mistakes in your retirement planning, then please contact us via email at firstname.lastname@example.org or call us at 425-373-9393. Retirement planning is too important to get right to mess it up by making these kinds of mistakes. Thank you.