In relation to retirement, not having a retirement plan is one of the most detrimental mistakes a person can make and is often the root of retirement difficulties and regrets. However, even those that have a retirement plan might be making some very basic and common mistakes. This is why many individuals are opting to work with Retirement Planning Services to address any concerns about their existing retirement planning decisions and ensure the most comfortable retirement possible.
Retirement isn't as simple as just making sure that enough money has been accumulated to last the individual(s) through retirement years, as many elements can affect accumulated retirement funds. Inflation, debt, insurance, alternative income sources, and retirement fund protection are all elements that can have large impacts on the bottom line of a retirement plan. Ironically, these elements are also the source of some of the most common mistakes that individuals make when preparing for their retirement years. Here's a look at how these common mistakes impact retirement and how advisors typically address them.
Forgetting About Inflation. There's no doubt that inflation will eventually eat away at even the most prudently saved funds unless steps are taken to protect against it. A professional advisor might recommend portfolios that are adjusted or return above inflation. Treasury Inflation-Protected Securities (TIPS) are a type of government bond that promise a return rate above inflation. Social Security payments and some pensions and annuities automatically adjust for inflation on a yearly basis.
Retiring with Too Much Debt. Americans are increasingly entering their retirement years under a heavy load of mortgage, credit card, and other sources of debt. Carrying this debt into a retirement means that the retirement funds will not only need to support current spending, but past expenditures and accumulating interest on the debt as well. This is a lot to ask from most retirement funds. Financial planners typically recommend avoiding retirement until these sources of debt are completely paid off when possible.
Having Inadequate Insurance. Many individuals feel a false sense of security in knowing that they will most likely be eligible for Medicare once they're 65 years old. However, even with Medicare coverage, the retiree will still be paying costly premiums, coinsurance, and deductibles if supplemental insurance isn't purchased. The retiree will also be left with many common health care expenses, such as hearing devices, eyeglasses, and long-term care stays of greater than 100 days, that aren't covered under Medicare. It's recommended for any individual dealing with significant assets to seek the guidance of a Retirement Planning and Insurance professional to best protect their assets.
Relying Too Heavily on a Single Source of Income. When a retirement plan hinges on income from a single source, there's always a risk that the retiree could lose large portions, if not all, of the funds if the income source loses its value. Diversifying with various sources of retirement income can help lessen the likelihood of a retiree losing all their income in one swift swoop. Many financial planners recommend having between four and six sources of retirement income. These sources may be in the form of an IRA, CD, 401 (k), royalty income, cash investment, personal investment, or rental property investment. Social Security payments, annuity payments, and pension payments would be examples of guaranteed sources.
Failing to Protect Savings. Most experts recommend for individuals to start focusing on protecting what they've saved when they are around five to ten years from retiring. This protection may include reducing risk by avoiding early withdrawals; curbing saving-related taxes and fees; and moving assets toward conservative investments, Roth and traditional retirement accounts, and low-cost investments.
Frequently Asked Questions
How does inflation affect my retirement savings?
Inflation reduces the purchasing power of saved money over time, so investments that at least keep pace with inflation can help preserve real value.
Should I pay off debt before retiring?
Paying off high-interest and unsecured debt before retiring is generally advisable because it lowers ongoing expenses and reduces pressure on retirement income.
What types of insurance should I consider before retirement?
Consider supplemental health coverage, long-term care options, and appropriate life and property insurance to protect assets and limit out-of-pocket risks.
How many income sources should I aim for in retirement?
Many planners suggest having multiple income streams—often several sources—to reduce dependence on any single payer and improve resilience.