Most people understand the need to plan and save diligently for retirement. However, they may also be doing things that could diminish their financial security later in life. Craig Brimhall, vice president of retirement wealth strategies at Ameriprise Financial, reveals some of the most common retirement planning mistakes and how to avoid similar blunders.
Mistake #1: Not prioritizing your financial goals. It’s not uncommon to be faced with conflicting priorities for your time and money.Many of us transition from paying off our own student loan debt, to saving for a home and raising a family, to helping pay for our children’s education. It’s important to not let these goals, and the financial demands that accompany them, overshadow the need to save for retirement.
To avoid this mistake, automatically invest a portion of each paycheck into a retirement account. If your employer offers a match, maximize it, even if it feels like a stretch on your budget. Likewise, if you’re trying to balance your children’s education expenses with your own retirement savings, remember that there are loans available for college. Unfortunately, the same isn’t true for retirement.
Mistake #2: Underestimating how long you’ll live. There is a good chance that you and your spouse or partner will live longer than the generation before you. According to the Bureau of Labor Statistics, while the average retirement age is 62, there is a 50 percent chance that at least one member of a married couple (at age 65) will live to age 92. That’s why most financial advisors now recommend that their clients plan for a 30 year retirement.
Unfortunately, this is a common mistake. Respondents to our New Retirement Mindscape IISM study
estimated their retirement will last approximately 20 years – a significant discrepancy that could leave many unprepared.
Increased longevity can also impact your protection needs. As you approach retirement, be sure to review your insurance policies and make any necessary adjustments. For example, your life insurance needs may change and you may want to replace or supplement your disability insurance with a long-term care policy.
Mistake #3: Not determining how much you need to save.
also revealed that only half (54 percent) of pre-retirees have determined the amount of money they need to save for retirement. This could leave them with a significant shortfall once they decide to retire. Likewise, it’s very difficult to be motivated to save if you don’t have a specific goal in mind.
While it’s important to determine your anticipated expenses and life expectancy, you should also think about how you want to spend your retirement years. Your activities – travel, working part-time, relocating to a new home or city – may have a significant impact on how much you need to save.
Finally, help protect your retirement savings by ensuring your portfolio is diversified. It’s natural to immediately think of asset allocation. Time, product and tax diversification can also play a key role in helping you stretch your retirement dollars further and in a more tax efficient way.
Mistake #4: Believing you’ll get to choose your retirement date. It’s nice when things work out the way you’ve planned. Unfortunately, this isn’t always the case.When we surveyed consumers in 2005, only four percent of retirees cited a layoff or career setback as their primary retirement trigger. This increased dramatically to nine percent in 2010. In the current economic environment, it’s possible your boss or company may decide you’re ready to retire before you do.
In addition to a layoff or job setback, other situations – such as health concerns, a divorce or even something positive like a new grandchild – may cause you to change or rethink your retirement date. We encourage our own clients to think through a variety of scenarios as they plan for retirement.
Mistake #5: Failing to share your retirement dreams with your spouse or partner. Of course you and your significant other have the same plans for retirement. Or do you? You can’t be sure unless you’ve talked about it.
As an example, our study
showed that more pre-retired men (38 percent) than women (27 percent) expect to continue working full- or part-time during their retirement. By contrast, more pre-retired women than men place a high importance on being able to volunteer and spend time with family during retirement. These differing priorities continue during the retirement years. The earlier you can address any significant discrepancies, the more likely it is you can both achieve the retirements you desire.
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