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Health & Fitness

The 9 Most Common Retirement Planning Mistakes, Part One

Joe Lucey itemizes common costly mistakes made in retirement planning that can have a depleting affect on retirement savings.

Over the next two weeks, I will be highlighting some of the most common mistakes our financial advisors see when first starting with our clients at Secured Retirement Advisors. These errors can be costly and leave people living on considerably less than they planned.  Hopefully, this list will help you recognize any potential sink-holes in your own retirement plan so you can discuss them with your financial advisor and make the necessary corrections.  

  1. Thinking only in terms of “ME” not “WE”:  At the death of the first spouse, the surviving spouse will lose a Social Security benefit, a possible reduction in a pension, and likely an increase in tax brackets when going from joint returns to an individual return. 80% of all men die married while 80% of all women die single. Additionally, 75% of all women living in poverty were not poor before they were widowed.  Early income and retirement planning decisions should be made with survivor benefits in mind to ensure that both husband and wife are protected in retirement.
  2. Not Planning Around Taxes:  Taxes saved today or in the future is additional money earned. Tax efficient withdrawal and investment strategies will enable you to withdrawal less assets and achieve a similar net income result, allowing unused assets to accumulate longer untouched. Which accounts you elect to withdrawal first and the timing of those withdrawals (called the sequence of withdrawals), could make a tremendous difference in the amount of overall net income planning.  While many consumers have been told to continue to defer their retirement assets as long as possible, doing so can create a tax planning “time bomb” once required minimum distributions are triggered or when passing to beneficiaries.  Advanced analysis of tax efficient sequence of withdrawals can protect your retirement funds from rising tax rates in the future.  Consider a proactive approach which may include paying more tax today at lower tax rates in order to avoid the erosive effects of rising tax rates in the future.  Also, learn how social security payments are taxed and how to avoid “torpedo taxes” which can cause “stealth taxes” where additional income is taxed at higher rates than an individual’s tax bracket.  You can see how important it is to include tax planning in your overall financial planning.
  3. Not Planning for Longevity:  Longevity risk, living longer than expected, should be one of the biggest concerns of a family entering retirement. Statistically, married couples age 65 and older should be planning for a future in which they have a 50% probability that at least one of them will celebrate their 92nd birthday. Failing to plan for the effects of inflation on a retirement income and investment portfolio can be disastrous.  Be cautious when electing fixed payment lifetime income streams that do not adjust for inflation or by not allowing for enough growth in your overall portfolio by leaving too much in CDs. 
  4. Failure to Shift from Growth Mode to Distribution Model:  Retirees often have a fear of change but a retiree should recognize a paradigm shift in their investment risk psyche. A change should occur when investors switch from “saving for future retirement mode” to “an income distribution and protection mode.” During accumulation years, market volatility creates dollar cost averaging opportunities and risk offers rewards for an investor who has time on their side for recovery. However, when transitioning to the distribution phase, retirees should take a more protective posture since risk, reverse dollar cost averaging and volatility can accelerate the depletion of assets. Retirees need to make a psychological shift from return on their money to return from their money.  This often involves using less volatile investment instruments and focusing more on consistent returns.   

 

Next week I will round out the list with five more issues that can threaten your retirement nest egg.  If you have any questions about the mistakes itemized this week or would  like a complementary “3 Step Review”, which includes a complete life insurance analysis and consultation of your own retirement plan, call Secured Retirement Advisors at 952-460-3260.

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