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Health & Fitness

The 9 Most Common Retirement Planning Mistakes Part Two

Joe Lucey rounds out the list of top 9 mistakes made in retirement planning that can cost retirees plenty from their precious savings.

On Monday I began highlighting some of the most common mistakes our financial advisors see when first starting with our clients at Secured Retirement Advisors. Today I will complete the list with the final five errors that cost retirees their precious savings.  Again, my hope is that 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.

5.  Ignoring Health Care Expense Planning:  Retirees should consider reviewing their Medicare plans on an annual basis in the same way they review their portfolios.  Prescriptions change, plans change, and an annual analysis on which is the best plan for you can create valuable premium savings.  Also, consider the impact that a chronic illness or long-term care expenses would have on your portfolio.  The national average cost of nursing home care is $200 per day or $6,000 per month. Not having a plan in place that can provide the necessary income to replace these costs can prove disastrous.

6.  Not Maximizing Social Security Benefits: Social Security should be thought of as an additional retirement asset, much like your 401k, and election timing can often be the difference of over $100,000 in lifetime benefits for a married retired couple. Most retirees elect Social Security as soon as possible, which is usually a mistake. Coordinating your Social Security benefits to begin at your retirement date, likewise will not usually provide the the optimal benefit to you.  

7. Too much Investment Risk:  At Secured Retirement Advisors we often hear from families that they have a high risk tolerance, so therefore they want to take more risk in their portfolios.  When in fact, risk tolerance is only one of three risks that should be considered in retirement planning.  The second risk to consider is the risk required, or the amount of risk needed to combat future inflation in the portfolio. The third, risk capacity, identifies how much of the assets can be lost before retirement security is jeopardized.  All three of these risk factors should be considered, but unfortunately a majority of investors (and their advisors) only consider risk tolerance in their planning.  

8. Relying on Hypothetical Returns: Hypothetical returns are often used when evaluating financial plan assumptions.  Financial plans and financial calculators often illustrate a flat assumed rate of return, not one that fluctuates like expected market returns. Using more realistic returns that fluctuate in value and illustrate losses is important because level rates of return are not realistic and create false levels of confidence or misinformed decisions using unrealistic averages.  A focus on volatility is usually more important than average rates of return. In other words, given two portfolios with the same average return, the one which experiences lower volatility outperforms over time.

9.  Failure to Focus on the Big Picture:  Comprehensive financial planning is more than just maximizing investments; it's coordinating your investment portfolio with other important factors such as your overall income plan and your tax plan which ultimately will decide your benefits.

This wraps up my list of the top nine mistakes that can threaten your retirement nest egg. I hope it will be a useful tool in evaluating your retirement plan.  If this has prompted questions for you or if you would  like a complimentary “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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