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Avoid These Common Retiree Mistakes

| October 01, 2020
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Avoid These Common Retiree Mistakes

Retirement is an exciting period for many people who are eager to say goodbye to long days at the office and hello to long days at the beach. However, entering retirement also means saying goodbye to a steady income stream. It is important that new retirees have a plan in place and avoid these common mistakes.

Forgetting about Inflation

Pre-retirees often assume that the amount of money they will need in year one of retirement will be the same as what they need throughout  retirement.  Retirees should apply a cost of living adjustment to their retirement expenses and factor that in before determining if they are truly ready to retire.

Being too aggressive or conservative

It is important to look at your asset allocation.  If you are invested too aggressively when withdrawing funds, you might fall prey to something called “sequence of returns risk”.  It is the risk of a giant market down year early in retirement, coupled with your withdrawals, prevents you from ever catching up and increasing the odds you run out of money in retirement.  Vice versa, by being too conservative, you may not keep up with inflation let alone actually grow your money.   According to many studies, the probability of success is greatest when using a moderate risk portfolio – typically a mix of 60% stocks and 40% bonds.

Turning on Social Security too early or too late

Social Security is a great example of a problem with very unique answers.  Based on your own life expectancy, size of savings, expectations for stock market returns going forward, etc.  Social Security can be an amazing tool – but if you turn it on too soon you might be shortchanging yourself hundreds of thousands of dollars of income over the course of your retirement.  If you wait too long – you might cause your portfolio undue stress.

Consider other sources of guaranteed income (like pensions) as well as your health, your spouse’s age and health and try to make the smartest bet you can. Most financial planners have software that can assist with this decision.

The big spending splurge

Retirees will often spend tens of thousands of dollars, or more, on a big splurge just after retiring.  Whether it is a vacation home, a renovation or a bucket list trip, they then fail to account for this expense in all of their retirement planning. 

Get the expense out of the way and accounted for in your final year or two of work, or avoid the expense altogether. 

Continuing to pay off kids’ student loans in retirement

Retirees will continue to assume the debt incurred by sending kids to college long after their working years.  This added expense increases taxes, withdrawal rates and the risk of portfolio depletion.

Have a talk with your children about assuming their debt so that you don’t have to move in with them in retirement!

Assuming all annuities are bad, all the time

The media has confused the situation when it comes to annuities.  As many pundits are making the case that we should lower our withdrawal rates in retirement, and many investors are more concerned about stock market volatility is poses the question:  Is there value in guaranteed income?  For many investors without large pensions, the answer is quite possibly.  It is worth a closer look.

Do your research and have conversations about ensuring that your guaranteed income sources meet many of your basic, fixed expenses.

Not having a plan

If you have retired without investing in a formal financial plan, you may have made a mistake.  You wouldn’t build a house without blue prints or drive to a long-distance destination without directions.  If you never put a financial plan in place you might be basing your entire retirement on flawed assumptions

Contact a Certified Financial Planner and put a plan in place.

 

Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and  should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate. 

Chris Kampitsis is a registered representative of and offer securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC. www.SIPC.org   6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000  CRN202209-272161

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