Steve Cunha, CFP®, C(k)P, AIF, CRPS®, CLU, CLTC
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July 07, 2022
Underestimating longevity: Many retirees fail to grasp that their retirement can last for over 30 years and will fail to plan with this reality in mind. The goal is to ensure your money will last longer than you. Otherwise, you'll be moving in with the kids and dependent on them. All retirees should create a written, dated, and dollar-specific retirement income plan that determines the maximum income they can withdraw from savings without running out of money. This approach will help keep you within a budget and help your money have more longevity than you.
Failing to save enough during their working years: This issue is one of the most significant problems in retirement. I have worked with countless people who stated that they wished they had started saving earlier and more consistently during their working years. The fact is the savings rates in this country are generally very low. According to surveys I have reviewed, 51 percent of workers age 55 and up have saved less than $50,000 in retirement savings. One in five pre-retirees aged 50 to 64 have less than $5,000 in retirement savings. The Profit Sharing Council of America has determined that the average employee must save approximately 10% of their income on an ongoing basis to have a good chance of retirement success.
Failing to acknowledge the impact of inflation: Many Retirees are under the impression that once they retire, they suddenly need to invest very conservatively. Many will opt to place their investments in low-yielding bank CDs, savings accounts, or treasury bills. These investment options have historically not kept pace with inflation. This means their retirement savings' purchasing power is declining yearly, requiring the retiree to use more of their investment principal to keep up with the rising cost of living. With less and less principal, the retiree will generate less income from their portfolio. Retirees should carefully structure a well-diversified portfolio that combines "safe investments" and more growth-oriented investments that can outpace inflation over time.
Failing to understand the rollover rules: Some retirees are unaware that taking their pension or 401(k) in a lump sum can result in a substantial and unnecessary tax burden. Because a large amount of taxable income will be realized in one year, retirees can find themselves in a higher tax bracket than during their working years. For some people, that amount can be as high as 40%. If you are under age 59 ½, you could face an additional 10% early withdrawal penalty. When planning your retirement rollover and income strategy, be mindful of the actual after-tax or net income you will get to keep. Also, learn about all your options, including lump-sum distributions, IRA rollovers, and transfers, before deciding.
Failing to have a written financial game plan: When I was in the Army, they taught me the Five P's. Prior – Planning - Prevents - Poor - P Most people agree that most businesses fail without a written business plan. So why do people think they can succeed financially without a written plan? Everyone should have one and review it periodically to ensure their financial goals and circumstances haven't changed. The plan should include an analysis of all financial goals, retirement income needs, investments, insurance, tax, and estate plans for retirees. Also, tax and estate planning laws and the economic environment are constantly changing. Any financial plan isn't worth the paper it is written on unless it is implemented and monitored on an ongoing basis.
