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Eight Mistakes That Will Ruin Your Retirement

September 26, 2023

Pursuing your retirement dreams is challenging enough without making some common, easily avoidable, mistakes. Here are eight big mistakes to watch out for:

    1. Not Planning: Yes, the biggest mistake is having no strategy at all. If you have no strategy to reach a stated, quantifiable goal, you might as well lie down in the road and let fate determine your success – or lack thereof. Chance is not a strategy; nor is letting others tell you what you should want.

        You need a roadmap to get from here to retirement – specific, measurable, achievable, relevant and temporal -- requiring steps –  near-term, intermediate and long-term goals -- designed to end at that desired conclusion: a financially safe and secure retirement. The goals should be yours, not from a textbook, tailored to your retirement vision.

    2. Frequent Trading: Chasing “hot” investments often leads to despair. We have found avoiding losses produces more long-term wealth than chasing the latest shiny object.

        Create an asset allocation strategy that is diversified to reflect your objectives, risk tolerance, and time horizon; then make periodic adjustments based on changes in your personal situation, not due to market ups and downs.

    3. Not Maximizing Tax-Deferred Savings: Employees have tax-advantaged options to save for retirement. Not participating in your company’s 401(k) is a mistake, especially if you’re passing up free money in the form of employer-matching contributions.

    4. Over-reliance on Qualified Plans: Employer plans’ greatest advantage is that contributions are automatic, out-of-sight and often forgotten. Their biggest limitation (and strength) is they cannot be easily accessed before retirement. What most participants forget is that distributions are taxable income; they are building a “tax bomb” that can shrink their account value up to 40% in retirement. Qualified plans also require minimum distributions at age 73 when you may not want to take them or the taxes they bring.  

         Good planning includes alternative investment vehicles to help manage your taxes in retirement.

    5. Prioritizing College Funding over Retirement: Your kids’ college education is important, but you may not want to sacrifice your retirement for it. Remember, you can get loans and grants for college, but you can’t for your retirement.

    6. Underestimating Healthcare Costs: Extended medical care expenses can destroy your financial strategy in retirement if you don’t prepare for them. A sure budget killer is Long Term Care either in a Nursing Home or with attendants at home. The best option is some form of LTC insurance.

    7. Not Adjusting Your Investment Approach Well Before Retirement: The last thing you can afford is a sharp fall in stock prices or a sustained bear market just when you’re ready to stop working. Consider adjusting your asset allocation in advance of tapping your retirement savings so you’re not selling assets when prices are depressed.

    8. Retiring with Too Much Debt: If too much debt is bad when you’re working, it can be deadly when you are retired. Consider managing or reducing your debt before you retire. That does not mean paying off that 3.00% mortgage when cash earns 4.5% plus.

       We define “debt” as an obligation that can only be retired by future cash flow. If you have sufficient cash to retire that mortgage, is it really “debt”?

It’s Not Only About Money: Above all, a rewarding retirement requires good health, and a good outlook. So plan on maintaining a healthy diet, exercising regularly, staying socially involved, and, above all, remaining intellectually active.