by Jay Sprinkel
8 Mistakes That Can Upend Your Retirement
Trading in your 9-to-5 for retirement life is supposed to be an exciting time. You can finally sleep in late, play golf, start a hobby, volunteer, babysit the grandkids, travel the country, and do anything else you couldn’t make time for while you were working. But there are certain mistakes that can ruin a stress-free retirement.
As a financial advisor in Annapolis, you see some of the same missteps again and again. Below, we take a look at 8 of the most common we see.
1. Not Having a Retirement Strategy
A big mistake people often make is having no retirement strategy at all – simply hoping for the best is not a strategy. Sure, you can blindly save a portion of your paycheck, cross your fingers and hope it’ll be enough to retire comfortably when the time comes, but what if it’s not?
Retirement is too big of a transition to leave up to chance. Yes, the idea of planning for the future can be overwhelming, but that’s not a good reason to put it off. Instead, break the process into pieces. Start by establishing your goals in retirement and, consider working with a financial advisor to develop a plan for how you’ll work towards those goals. Make sure to estimate your annual retirement costs based on the lifestyle you want to live in retirement and calculate how much you’ll need to save to fund that next chapter in life.
Retirement planning is too important to put off. Schedule a no-obligation conversation with the team at Scarborough Capital Management to see how we can help.
2. Chasing ‘Hot’ Investments
The appeal of frequent trading is understandable. No one wants to miss out on the latest and greatest trend. But if you chase hot investments, you just might get burned.
Instead of following the crowd, choose an asset allocation strategy that reflects your risk tolerance, your goals and your time horizon. Then, invest for the long-term and make adjustments as your situation changes – not as the media or markets change.
3. Not Taking Advantage of Tax-Deferred Savings
Most working Americans have some form of tax-deferred account they can use to save for retirement, be it a 401(k), Traditional IRA, Health Savings Account (HSA), etc. But not everyone takes full advantage of them.
If you’re not already maxing out the tax-deferred savings accounts available to you, see if you can. The contribution limits for 2021 are as follows:
- 401(k)s for 2022: $20,500, or $27,000 if you’re age 50 or older
- IRAs for 2022: $6,000, or $7,000 if you’re age 50 or older
- HSAs for 2022: $3,650 for self-only insurance plans; $7,300 for family plans; plus a $1,000 catch-up contribution if you’re age 55 or older
Many employers offer matches on 401(k) and HSA contributions. Contact your human resources department to see what options you have available.
4. Prioritizing College Savings Over Retirement
Saving for your children’s college is wise, especially as the cost of tuition continues to increase. But if you’re sacrificing your retirement in the process, think again. Retirement is inevitable. And when the time comes, you won’t be able to get grants or take out loans to fund it.
Your children, on the other hand, have options to fund their education goals. This may sound harsh, especially if you’ve been burdened by student loan debt yourself, but one of the best gifts you can give your kids is the gift of not having to support you financially when you’re older. Make sure you’re financially stable before you start to help others.
5. Overlooking Healthcare Costs
It’s estimated that an average retired couple age 65 in 2021, will need to have saved at least $300,000 after tax to cover healthcare expenses in retirement. And no, that doesn’t include long-term care!
Healthcare is often a retiree’s biggest expense in retirement. Instead of being derailed by it, plan for it ahead of time. Talk to a financial advisor about opening an HSA if you have a high-deductible healthcare plan. Discuss your need for long-term-care insurance. Plan for healthcare premiums if you want to retire before Medicare kicks in at age 65. Explore your options early, so you’re prepared when you do retire.
6. Not Adjusting Your Investment Approach Well Before Retirement
What would you do if the stock market dropped suddenly right as you were going to retire? This was the reality for many Americans who planned to retire in early-2020 right as the world shut-down and the stock market nose-dived.
Sharp dips in your portfolio right as you’re about to retire can wreck your financial safety, especially if you have to solidify those losses by taking withdrawals. Consider adjusting your asset allocation in preparation for your upcoming retirement, to plan for any volatility that could happen when it’s time to start living off your assets.
7. Retiring With Too Much Debt
Debt is bad enough when you’re earning a paycheck, but it can really hinder you when you’re in retirement and living on a fixed income. Average retiree debt hit nearly $20,000 in 2020 as a result of the pandemic. This type of baggage can weigh you down and negatively impact your ability to live comfortably in your Golden Years.
Make a plan now to get rid of your debt. This should include credit-card debt, auto loans, student loans, medical debt, personal lines of credit and even your mortgage if you’re really serious about being debt-free.
8. Focusing Solely on the Money
Retirement isn’t just about having enough money in the bank. The team at Scarborough Capital Management believes it should also be about staying healthy, doing the things you love and keeping your brain sharp.
As you prepare for retirement, don’t forget about the non-financial parts of the retirement puzzle.
The Bottom Line
There are a lot of moving pieces when it comes to planning for your retirement. The stakes are high, and improper planning can add stress to your life, or worse, cause you to run out of money way before your time. As a financial advisor in Annapolis, planning for the 8 mistakes outlined above will help you, knowing you’ve done your best to prepare for life’s next chapter.
If you need help creating a retirement strategy, contact the team at Scarborough Capital Management and get the conversation started.
Investors should be aware that investing based upon a strategy or strategies does not assure a profit or guarantee against loss. This material is not intended to be construed as tax or legal advice. Always consult your tax and/or legal professional for details regarding your specific situation.