5 Retirement Mistakes to Avoid, #108
Planning for retirement can be a complex process. There are so many things to do that it’s easy to forget common pitfalls to a successful retirement strategy. On this episode, I’m going to go over the Top 5 Retirement mistakes that I see regularly, how to avoid them, and resources to make sure you’re on the right track.
You will want to hear this episode if you are interested in...
Are you paying too much in taxes? [1:31]
How soon is too soon to collect social security? [8:04]
Do you have an investor policy statement? [10:23]
How much money do you need to retire well? [11:45]
Don’t get ripped off by people or products [13:19]
Keep your money in your pocket
The number one retirement planning mistake I see is people paying too much in taxes during pre and post-retirement. This happens most often in pre-retirement through missed deductions. Future retirees want to find out if their employers match 401k and 403b contributions and if they contribute enough to earn their companies maximum match. Those on high deductible health plans should also take advantage of a health savings account (HSA) if it’s availab. These two deductions alone can set you up for success in pre-retirement.
On the post-retirement side, you want to develop a strategy around your taxable income. Traditional retirement accounts allow you to take deductions upfront and pay taxes later. This could potentially create an issue in retirement because with various forms of retirement income like Social Security and a pension, retirement account distributions could put you in a similar tax bracket as when you were working. Not to mention mandatory distributions kick in when you turn 72. One way to tackle this problem is to take the money out now at a lower and predictable tax rate and put it into a Roth IRA where the money can be withdrawn tax-free at a later date.
Fail to plan, plan to fail
You would never plan a trip without knowing where your starting point is. So why do that when it comes to retirement planning and investments? A recent study showed that out of 6,300 Americans, half simply guessed a dollar amount when it came to knowing how much money they’ll need for retirement. Only seven percent of the study participants opted to use a retirement calculator. For whatever reason, many future retirees put off doing the math on how much they’ll need to live comfortably in retirement. Perhaps out of fear that the end goal is unattainable? But ignorance is not bliss! You have no chance of knowing where you stand without running the numbers and clearly planning for your future.
A great way to start the retirement planning process is through an investor policy statement. This guide establishes a framework for your portfolio by detailing your target asset allocation, which assets you’re investing in, the investment timeframe, cash flow needs, and your system for maintaining these investments. Without an investor policy statement, you’re essentially winging it. Buying and selling based purely on emotion rather than strategy. That will turn you into a collector of investments rather than a profitable investor. Having an investor policy statement means having a clear direction that helps you stick to your investments long-term. Listen to this episode for more retirement planning pitfalls to avoid!