“When we're young, we tend to think about retirement as though it's just a really long, really great vacation.”
You may envision a house on the beach or playing a round of golf whenever you please. Take off for Vegas or stay in your pajamas all day. Whatever you want.
A recent Nasdaq article, “6 Mistakes to Avoid When Planning Your Retirement,” says that as we grow older and retirement gets closer, enthusiasm and positive feelings frequently turn to angst. We need to figure out how we're going to pay for the lifestyle we want when the paychecks end. This can be a challenge, even for the savviest of savers.
Here are several mistakes to avoid when planning your dream retirement:
- No plan. Your goal in retirement should be to understand the amount of money you’ll have coming in each month from all of your income streams and how you'll make that money last. Your written retirement plan should encompass five main areas:
- Income (how you’ll pay yourself);
- Investments (how you’ll keep growing your money while keeping it safe);
- Taxes (how you’ll hold on to more of the money you worked so hard to save);
- Health care (how you’ll address short- and long-term care expenses that could significantly reduce your nest egg as you get older); and
- Estate (how your family and favorite charities will be cared for when you die).
That plan is your guide to and through a successful retirement.
- No portfolio stress-testing. Ask yourself how much money you're willing to lose, if there's a market downturn. Try to find an amount that you can handle, both financially and psychologically.
- No tax plan. Many people underestimate the amount they’ll need to pay in income taxes after they retire. For example, up to 85% of their Social Security benefits can be taxed, and there are taxes on a 401(k) or IRA (if it’s not a Roth) when they take out their money. Many people think that they'll be able to live on far less income during retirement. Some can live on less, but many cannot. Work with an estate planning attorney who understands retirement tax planning.
- Unrealistic income plan. Many peoples’ income plans have a high rate of return that may be incredibly optimistic. This type of plan typically uses minimum inflation protection rates and low tax rates, with no assets assigned to health care costs. A plan like that could leave you vulnerable.
- No estate plan or an out-of-date plan. If you don't have an estate plan, the state may decide who gets your assets. This may not be close to what you wanted for your family. Work with an estate planning attorney to draft a living trust, will, a living will and a power of attorney. You also may need or want to draw up a other types of trusts, such as Inheritance Protection trusts for your children or other loved ones. If your legacy is an important part of your retirement dream, your wishes should be included in your comprehensive plan.
If you're near retirement or already there, creating a written plan should be a top priority.
Reference: Nasdaq (November 20, 2017) “6 Mistakes to Avoid When Planning Your Retirement”