5 Most Common Retirement Mistakes
Financial planning and retirement are not the same for everyone, however many of the financial mistakes people make are.
I am not your father’s advisor. I am a wealth advisor who works with women going through a transition. It has been almost a decade since I joined my father’s firm which has a combined 58 years of experience between the three of us.
My father, my brother and I have hosted four retirement seminars per year for the past seven years, so do the math of how many people we’ve seen and helped as they approach this next phase in life. During these interactions, here are the top retirement mistakes that we have encountered.
Mistake #1: Spending
When it comes to retirement, the number one retirement mistake we have all seen is, you guessed it, spending.
People enter into retirement thinking they are going to spend less. Then they retire. They have rediscovered free time, and want to go on trips, remodel their houses and help their kids. Before you know it, we have to reign them in and tell them, “Hey, you’re going to run out of money.” That’s not an easy conversation to have, not at all.
We recently met with a couple that had planned a trip every month for the next two years! This couple lives in a retirement community, so their neighbors and different groups of friends were perpetually inviting them on trips.
While all of these adventures may sound so amazing, it is important to make sure you are not jeopardizing tomorrow by overspending today. People get wrapped up in having fun and feel pressured to join the crowd and go on these excursions – “everyone else is going and I don’t want to miss out” – but that can be dangerous.
Discuss your retirement plans with a financial advisor. Contact Foran Financial Group to see how we can help.
Mistake #2: No Planning
We tell people they should do a dry run before going into retirement. What does it look like? Hypothetically, if you were to retire right now, what does your financial situation look like, taking into consideration Social Security, pensions, and assets? What is inflation going to do to you over time? That’s a very important issue.
Although it may be hard to commit to this, by doing a dry run you get a better sense of how much you can really spend. It forces you to budget and spend only that specific amount of money while you’re still working. Projecting out what the next 20, 30, 40 years is going to look like if you can only spend that defined amount of money is a great exercise for planning.
Many people have told us that they’ll only need about $30,000 annually to live on, once they retire. I’m going to test you to see if you can realistically do that now. Can you really live on just $30,000 each year? (In New Jersey, probably not.)
Mistake #3: Taking Advice From Friends and Neighbors
We meet a lot of people who listen to their neighbor, their relative, or their coworker for advice.
“Well, my neighbor took Social Security at 62, so that’s what I’m going to do,” or “My neighbor waited until 70, so that’s what I’m going to do,” versus doing a dry run and determining your own optimal time to make those decisions based on your individual situation.
Nobody has exactly the same circumstances as a neighbor, coworker or best friend, which is why it is important to have your own strategy in place. There does not exist some magical formula that will work for everybody. You really need to sit down with someone, an advisor, who can map it out for you, your spouse and your children.
Mistake #4: Retiring With No Thought of What’s Next
We see many people retire without having given thought as to what they are going to do in this next phase of life.
What am I going to do? It’s a simple question but the answer can be very complex!
Deciding how you’re going to spend your time in retirement may seem simple, but it’s overlooked a lot. And it’s really half of the planning: What are you retiring to? Who are you going to spend your days with? Is your family around? Do you have friends who want to do the same things as you? What if your spouse passes away? All of these questions should be considered.
Have a plan so you can head towards what you want to do next! It’s an exciting time in life!
Mistake #5: Relying on Market Myths
The next misconception is pertaining market conditions during retirement.
We’ve all gone through a very strong period here in the markets. And a lot of time, people anticipate that this trend will continue throughout their retirements.
For example, someone last year may have had a return of $80,000, $90,000 or $100,000 in the market, and they think that’s going to continue for the rest of their retirement, when in fact, we know that what goes up can come down.
And it does come down. And it’s healthy when it comes down.
This is why it’s important to be strategic in deciding where you’re going to pull your income from, which investments in the ebb and the flow, so you don’t have to sell extra shares when the price fluctuates. It all goes back to good planning.
When you do your financial and retirement planning, it’s wise to be conservative in your projections for returns, just in case it doesn’t turn around in your specific time frame.
Retirement can be an exciting time. But it can be a stressful time if you haven’t planned for it and therefore, aren’t prepared. Consider talking to a financial advisor early on, so you can make adjustments earlier if you need to.
It’s also wise to talk with a financial advisor if you’re going through a transition in life, such a marriage, divorce or the loss of a spouse. Your financial picture can change in these circumstances, and your future can be affected.
We always say, there’s no better time than now to start planning for the future.
If you’re looking to work with a financial advisor in New Jersey for the first time, or if you’re thinking about making a change, contact us to see how Foran Financial Group can help.
The financial professionals associated with Foran Financial Group may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.