From tax considerations and minimum withdrawal requirements to when you actually should retire, there’s no question that retirement planning can be complex. With so much to consider, seemingly small errors can derail years of careful planning and saving.
Learn more about five of the top retirement planning blind spots, and how to avoid them with careful planning, research, and thoughtful strategy.
5 Retirement Planning Pitfalls
Take a closer look at how you can avoid these five retirement planning blind spots to have a financially successful retirement:
1. Dismissing inflation in retirement planning. One of the most common mistakes in retirement planning is ignoring inflation levels. With inflation rising less than 2% for the last decade, it’s easy to overlook. However, as your retirement age nears, inflation is increasingly important to consider. Rising prices on goods and services, including healthcare-related expenses which run higher than the general inflation rate, can reduce buying power and lessen your return on investments. Prepare your portfolio for retirement by embedding direct inflation hedges bonds in your portfolio. This means that if and when inflation increases, your principal or interest from the bond will also increase. Additionally, focus on having a robust portfolio that can overcome inflation over time.
2. Failing to account for taxes on investments and savings. This common retirement pitfall is especially dangerous for seniors with tax-deferred accounts. Even if your portfolio looks large, remember that you will need to pay income tax on withdrawals, and may even own state income tax too. Of course, you must pay your taxes, and there is no way to protect against that. However, your particular municipality may have tax relief options for seniors or retirees on a fixed income. With this, it’s better to play it safe and budget for taxes when planning for retirement.
3. Failing to protect against market risk. Of course, it is ideal to retire when your portfolio is large, and the market is doing well. However, when portfolio balances are enlarged, it can mean that the market is heightened and you may be at risk. Set aside a portion of your retirement portfolio for safe securities to draw upon if the bond-market weakens. Additionally, decrease portfolio spending when the market is weak or volatile.
4. Going alone. The old saying, “Two are better than one” is never truer than when planning your retirement. Hire a fiduciary financial expert who can give you sound advice, help you navigate these retirement mistakes, and highlight any areas of concern, giving you the best chance at a financially successful retirement.
5. Overlooking long-term care and other healthcare costs. It is estimated that a healthy 65-year-old retired couple can expect to spend an average of $280,000 on healthcare, and that does not include long-term care expenses, which 70% of seniors will need over their lifetime. Seniors cannot rely on Medicare to cover all of these expenses and need to be prepared to pay for them out of pocket.
Budget accordingly for healthcare expenses and prescription medications with supplemental insurance. Carefully consider a long-term care insurance policy and enlist the help of a financial advisor to conduct a cost-benefit analysis to determine if it is a good financial fit for your family.
If you are concerned, you have fallen prey to any of these retirement pitfalls, consider contacting a fiduciary financial advisor today. Partnering with a trusted financial expert can help you navigate these pitfalls and give you a clear vision to avoid them in the future.