Sunday , 2 October 2022

6 “Retirement Killers” To Avoid For A Stress-free Old Age

…According to the Employee Benefit Research Institute’s 2020 Retirement Confidence Survey, 61% of respondents said that preparing for retirement made them feel stressed. [If that is you then planning for retirement will be much easier if you avoid the following 6 “retirement killers”.] #$$4$

This version of the original article by Edward Grosko, IAR and ChFC® with Kim Franke-Folstad (kiplinger.com) has been edited [ ] and abridged (…) to provide you with a faster and easier read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

Retirement Killer #1: Not having a written income plan for life

  • Many soon-to-be-retirees and retirees move towards, into, and through retirement, without a plan that tells them how much they will need from year to year, or where to find the money that will replace their paycheck, or even worse, how long their money will last.
  • The remedy: A written income plan will always let you…know where you are and where you’re going.
    • You may have to make some adjustments each year, as priorities and costs are bound to change as you move through retirement but, if you understand and stick with your income plan, it should help keep you on course.

Retirement Killer #2: Using the wrong investment return assumptions in your income plan prior to and in retirement

  • If you’re counting on a 9% return to make your plan work, for example, and the market doesn’t cooperate, you will most assuredly run into trouble!
  • The remedy: Be a bit conservative when making assumptions about market performance. As a rule of thumb,
    • your income plan should use a withdrawal rate of no more than 4% from your investments to provide income and be sure that your investment portfolio is positioned in a way that avoids wild swings in the market.
    • you should keep at least 18 months to two years in cash available in that portfolio so you are not forced to sell investment positions to pay income when the market value is down. Cash and more stable investments in your portfolio help you get through a bear market. It’s better to get a pleasant surprise when the market is stronger than expected than to have to deal with a devastating disappointment.

Retirement Killer #3: Taking too much risk with investments

  • Some people get so caught up in accumulating money they forget to protect what they have in or near retirement. Others mistakenly think they have a moderate or conservative portfolio when what they actually have is quite aggressive.
  • The remedy: Do an exhaustive review of your investments, simulate how they would react to historic market crises (the 2000 and 2008 corrections, for example) and assess how vulnerable your current portfolio might be to future corrections. Once you have an idea of your true risk exposure, you can reconstruct your investment strategy to suit your needs and goals. This is huge when you’re counting on a stress-free and enjoyable retirement.

Retirement Killer #4: Not enjoying the people and activities you care about

  • Some retirees are so uncomfortable with seeing the balance of their retirement account go down that they spend less than they can afford…[and] then, 20 years into retirement, they realize as time has ticked away, they haven’t done a thing.
  • The remedy: The goal here is for a cautious retiree to find a happy middle ground…[to build] the confidence needed to enjoy their money throughout their lifetime…

Retirement Killer #5: Giving too much money to the kids 

  • This retirement killer comes in many forms:
    • Parents with grown children who still depend on them for everyday living expenses.
    • Parents who are paying off their children’s student loans.
    • Parents loaning their kids money at low or no interest.
    • Parents co-signing a car loan or mortgage.
    • Parents gifting money to their children too soon and then coming up short on what they need for themselves early or later in retirement.
  • The remedy: When you fly, they always tell you to put your oxygen mask on first, before you help the person next to you. That should be a rule for parents when it comes to gifting or lending money to their children….You’re giving your kids a different kind of gift – the gift of financial independence, for them and yourselves, too.

Retirement Killer #6: Blindly believing your financial professional when he/she says, ‘You are going to be OK’

  • If you don’t have a plan, or you don’t understand your plan, you aren’t OK, no matter what your adviser says.

The remedy: If you’re paying for advice, you should be getting it. If your financial professional can’t make time to build a plan for you or doesn’t have the ability to do so, you should be concerned. Or, if he or she is focused primarily on growth vs. conservation and income it may be time to move on.

Conclusion

Don’t let these and other mistakes cause you to come up short in retirement.

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