The prospect of retirement occupies our thoughts more and more as we near retirement age.  When you are 10 years from retirement you can start to see the light at the end of the tunnel.  Coincidentally, the actions you take at the 10-year mark can have a significant impact on your ability to retirement.

Take a look at these 13 common mistakes that are made by pre-retirees and what happens if you do not address them.  Then, learn how to address them and see the type of impact it will have on your overall financial picture.

Mistake 1 – Investing Too Conservatively

What Happens if You Don’t Address

Our number one goal (at least it should be for most advisors) is to help our clients not run out of money.  There is a common misconception that just because you are reaching a later stage of life that you have to dial back risk.  While that isn’t a bad strategy it just may not be correct for you.  If you invest too conservatively there is a chance you won’t earn what you need to achieve your necessary cash flow in retirement.  This could create a myriad of issues.  You may unintendedly run out of money or not have enough money to life the retirement lifestyle you wanted.  We have all heard the “put it under your mattress

How to Address

Make sure that you understand what your cash flow needs to be in retirement and then use some of these other tips to know what type of return you need to achieve and invest accordingly. Evaluate and continue to evaluate your portfolio as time moves on.  At the very least you want to outpace inflation, so you do not lose purchasing power on your investments.

Impact on You

Addressing the risk in your portfolio will help you to do a few things.  First, it allows you to have a defined allocation that you can try and stick to.  You’ll need to rebalance occasionally to make sure you return to the proper allocation, but you will know what you are shooting for.  Secondly, it will help your portfolio be more in line with your risk tolerance.  Lastly, and probably most important, taking the proper risk will help you to not lose purchasing power. 

Mistake 2 – Projecting Retirement Expenses Too Low

What Happens if You Don’t Address

When we run a financial plan for our clients, we are sure to be as thorough as we can.  This includes an accurate picture of what expenses will be.  Too many times people use a “rule of thumb” like estimating they will need 80% of current income.  Similar to mistake 1, if you are using a number too conservative it will throw off projections year over year in your financial plan.  This can lead to running out of money too soon.  Not properly knowing your budget could lead you to having to settle for a lower lifestyle than you planned for, or even worse, could require you to go back to work. 

How to Address

Imagine the lifestyle you want, then figure how much money that would take. Again, don’t listen to any “rule of thumb” that you hear.  Take 3-6 months (even a year) paying attention to what your expenses are and go from there.  Take a look at any payments and see if they will be done before you retire.  Be sure to consider health insurance cost as well.  If you are on the fence about what way to estimate we like to be on the side of caution.  When we hear “our expenses are around $4,000 to $5,000” we will most likely use $5,000 as our number.

Impact on You

If you can properly budget what you will need in retirement it helps to take some of the guess work out of your retirement plan.  Far too often not having the proper amount leads to going back to work.  If you knew that you wouldn’t ever need to go back to work, wouldn’t that make you feel great?  There is a big difference between “I’m hoping to not have to go back to work” and “I’ll go back to work if I get too bored in retirement”

Mistake 3 – Reacting Too Hastily To A Market Downturn

What Happens if You Don’t Address

This could be a very big mistake.  The money you have saved for retirement is vital and panicking during a downturn could make it hard to make up what you lost.  If you are counting on this money in retirement, then it should already be allocated accordingly, and income should hopefully not be affected by a downturn.  If the market goes down and you make knee jerk reaction and leave, it is incredibly hard to know when you should get back in.  This can lead to you missing the rebound days.

How to Address

Lean on the professionals, that’s first and foremost, for emotional support.  They can be a less emotional sounding board.  Strictly from a portfolio standpoint, be sure to incorporate some vehicles where you can ensure that your income won’t be hindered for enough years to let the market rebound if there is a downturn.  Keep a calm head as well.  Whatever your method is to stay calm be sure to do that when times are tough. 

Impact on You

There are plenty of graphs out there that show the benefit of staying in the market.  By keeping a cool head during a market downturn, you are allowing yourself to stay invested.  This can help to ensure you do not miss the best days in the market.  This will hopefully help you to grow your investments.

Mistake 4 – Carrying Credit Card Debt

What Happens if You Don’t Address

This is an issue at any point of your financial journey but definitely in retirement.  If you carry balances on credit cards there is a good chance you are wasting money on interest.  If you do this year over year as you inch closer to retirement the money wasted on credit card interest cannot be allocated to a much more important place… Your Future.

How to Address

Put together a plan to get out of debt by the time you retire.  Look at options that could help bring the interest rates down on balances.  A common practice is to lump debt together and fix the rate.  One plus to this is you can plan for an end date of the loan.  Say you retire 5 years from now, it may be helpful knowing that a 5-year loan would be done before retirement.  You can also look for 0% offers but beware of balance transfer fees.  Regardless of what route you go with the key is attacking credit card debt head on.

Impact on You

The weight that will come off your shoulders when you make that final credit card payment will be incredible.  No longer will you have that feeling once a month when you make the payment of how you are just throwing money away.  Minimizing the interest, you pay on credit cards will then allow you to allocate money elsewhere.

Mistake 5 – Not Participating in Catch-Up Provisions

What Happens if You Don’t Address

Ignoring the catch-up provisions in your retirement plans can be detrimental to your ability to reach your ultimate goals.  When you are 50 you still have a significant amount time left, time that the government now allows you to put extra money away.  For example, if you participate in a 401(k) in 2022 your catch-up contribution is $6,500.  If you retire at 65 and contribute your $6,500 catch-up each year, the catch-up contributions alone with interest (assuming 8% return) would be $176,488.74 for those 15 years.  That’s only talking about the catch-up contributions!  Leaving that opportunity on the table could eb a mistake if you are trying to play “catch-up.”

How to Address

Look into the different plans that you participate in (i.e., 401k, 403b, IRA, Roth IRA, etc.) and see what the catch-up amount is and try to meet that.  If it is through your employer, you can call your plan sponsor for guidance.  Increasing your contributions could help you make up some ground if you started late as mentioned above.  Also, seek professional guidance from a planner who can run these numbers for you to show you a tangible plan. 

Impact on You

These catch-up contributions have the ability to reshape your retirement, especially if you got a late start.  If you are worried that you are lagging in your retirement preparedness, look again at the example at the top.  An extra $175,000 could go a long way to giving you and your family the retirement lifestyle you want. 

Mistake 6 – Ignoring Health Maintenance

What Happens if You Don’t Address

This isn’t directly related to finances, but it’s pretty close.  Sure, you aren’t “losing money” if you don’t take care of yourself but everything can become more expensive in retirement if your health is in jeopardy.  Too many trips to doctor, too many prescriptions, these things add up.  Not only that, if you make a financial plan you want to be around to see it come to fruition.

How to Address

Take the steps to go to the doctor.  Find a primary care physician.  Having a yearly checkup can be the catalyst for early detection of a problem.  If you can stay in relatively good health that will help keep premiums of certain insurances down which ultimately saves your money.

Impact on You

This one is pretty straight forward.  Being in tune with your body can pay dividends in the long run.  As we get older it is easier to put off the trips to the doctor but remember that retirement is a lifestyle!  To enjoy that lifestyle you want to be as healthy as you can be.  Strictly financially speaking, the healthier you are the less money you will spend down the line on doctor visits, prescriptions, etc.    

Mistake 7 – Not Reviewing Insurances

What Happens if You Don’t Address

A lot has changed in the financial industry over the last ten years and that includes insurance.  People are living longer which means insurance should be cheaper.  Not to mention that there are different products out now that could be more beneficial.  Not reviewing your insurance could lead you to be in a policy that doesn’t fit your needs anymore or the premium might just be too high.  Having a policy that isn’t in line with your goals could be a waste of money.

How to Address

An easy fix is to let a professional review your insurance policies and give you feedback.  The two things that comes out of an insurance review are 1) You get piece of mind by knowing you are properly covered or 2) You find areas that you can improve on.  A review doesn’t mean you HAVE to change.  Also, 50 is still very young to put the proper policies in place.

Impact on You

First, you will have an insurance plan that is specific to you and your family.  This allows you to be more comfortable when you think about the premiums that you shell out each month.  Having a proper insurance plan protects you against the unforeseen.  No one plans on not being able to work due to disability or premature death but putting the proper protection in place can ensure that you meet your goals regardless of what comes your way.

Mistake 8 – Planning to Work Past Retirement Age

What Happens if You Don’t Address

If you are counting on your ability to work in retirement you may get to that point and realize you don’t have the desire to anymore.  You may also not have the physical capacity to go to work on a daily basis.  There is a big difference between working because you want to in retirement and working because you have to.

How to Address

If you start your plan early enough you hopefully won’t have to work in retirement.  If you choose to at that time, then so be it.  You do not want to put yourself in a position where it is required that you work.  The easiest fix would be to plan as early as you can.  That allows you flexibility in your retirement years.

Impact on You

You will feel much less stress in your retirement years by not forcing yourself to work.  Being able to work on your terms in retirement can help keep your overall wellbeing.  There is nothing worse then retiring on Friday and having to show up at a different job on Monday.  Just because you think you will want to work part time in retirement doesn’t mean that you should count on it.

Mistake 9 – Not Understanding Your Social Security Options

What Happens if You Don’t Address

This is a scary one because it could impact your income for years to come.  If you take the income to early, it may not be enough to sustain your lifestyle that you hope for.  However, if you wait too long to take it you may never recoup the money that you put into Social Security. 

How to Address

First step, make a ssa.gov username and password.  Study what your options are and take the amount that is most suitable for you needs.  It is not the same for everyone so be sure to see how each amount can fit into your financial plan.  Once you know what your options are work with a professional to see which option make the most sense for you and your family.

Impact on You

Knowing precisely what amount you will have coming in during retirement is the cornerstone to a proper retirement plan.  From that number you will know how much you’ll need to withdrawal from retirement plans and be better able to plan.  You will also have a much clearer picture of what return you need to not run out of money in retirement.  It all starts with knowing your options when it comes to social security (or pensions you may have.) 

Mistake 10 – Failing to Have a Written Plan

What Happens if You Don’t Address

Without a written financial plan, you are just hoping that what you are doing is sufficient.  If you don’t plan for retirement you could get to the age you wanted to retire and realize it isn’t possible.  You may have to work longer or live off of less money in retirement.  That is not an ideal retirement

How to Address

Take the time to put your thoughts on paper.  Put the work in on the front end and then all you need to do is maintenance the plan year over year.  Focus on when you would like to be done working and how much you will need monthly.  Then is the best place to start.  If it feels like a lot to take on enlist the help of a professional

Impact on You

First and foremost, you will feel control.  Control over where your monies go in retirement and control over your retirement lifestyle.  Having a written plan gives you something tangible.  When big changes happen in your life, you can revise your plan and feel better equipped to meet these big changes.  It’s incredibly beneficial to have a written financial plan as it pertains to your retirement, but it will also give you a great sense of accomplishment.  Accomplishment that you took control of your financial future.

Mistake 11 – Investing in a Business Opportunity

What Happens if You Don’t Address

It’s not necessarily the investing in a business that is a mistake, it’s the higher amount of risk.  If you are planning to retire in the next 5 years and you put a large percentage of your retirement monies into one opportunity you are taking more risk than if you were properly allocated across different companies and different asset classes.  If this one investment drops significantly then you may not be able to retire in 5 years like you were planning. 

How to Address

Due diligence is required when looking to invest in any sort of business opportunity.  When you look at the money you have grown over the years be sure that the risk you are taking is in line with both your time horizon and risk tolerance.  If the business opportunity fits within your risk tolerance than it may be a suitable investment. 

Impact on You

Properly diversifying your nest egg will give you a better chance to not outlive your money.  The worst thing that could happen in retirement is that you save all this money to live off of and then due to one bad investment your entire retirement lifestyle is drastically altered.  By making proper investment decisions you increase the likelihood that you live out your ideal retirement lifestyle. 

Mistake 12 – Not Having an Emergency Savings

What Happens if You Don’t Address

Not creating an emergency fund can be the start of a debt accumulation snowball that can throw your finances out of whack.  Things happen and if you don’t have money set aside then you tend to rely on credit cards.  Your monthly bills rise when you start paying that back and if you start accumulating interest then it can become more costly than anticipated. 

How to Address

The first step is deciding where you should go to open your emergency savings.  You can use your current bank or use a new bank that is not as easy to access.  Put money in on an automatic basis until you have reached 3-6 months expenses.  The amount can vary from person to person.  The goal is to not accumulate debt when an emergency arises.

Impact on You

The benefits of having an emergency savings carries over into a few different areas.  First, it’s a great feeling to know that you have money set aside “just in case”.  Second, you will not go into debt as frequently because you have money set aside for small hiccups along the way.  Lastly, it will help to grow other areas of savings.  Let’s say you set your emergency savings at $9,000.  Your monthly expenses are $3,000 a month and you have decided that you want to set aside 3 months.  Once that emergency bucket is full you now have more money that you can set aside to other areas that need it.  Perhaps your Roth IRA, or you can pay down other debt. 

Mistake 13 – Thinking it’s Too Late to Grow Wealth

What Happens if You Don’t Address

When you convince yourself that it is too late to do something that is really just an excuse for not starting now.  When you hold off on saving money you are hurting your chances to retire when you want and how you want.  It’s a double-edged sword, you haven’t saved yet so you feel like you can’t start saving now and that can be detrimental to your ability to retire comfortably. 

How to Address

This is an easy one to fix.  Just start! Yes, ideally you would have started growing your wealth earlier in life, but there is never a better time to start then right when you are thinking about it.  A good practice is to set up an automatic transfer, so it becomes out of sight out of mind.  Start with any amount then go through your financial plan to see what the proper amount would be.

Impact on You

There is something about seeing the fruits of your labor which invigorates you to do more.  Once you start you will see how your plan comes together and want to be more involved.  You will take pride in knowing that you got the ball rolling and want to see your plan materialize into the retirement you always dreamt of. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal.  No strategy assures success or protects against loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not protect against market risk.

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