Key Considerations for Retirement Planning
As you approach your transition out of the working world you will face your one-and-only retirement. Here are four things to beware about.
As a fiduciary, fee-only financial planner in St. Paul, I have helped dozens of people prepare for retirement. As I have gone through the process with clients, I noticed a four things that keep coming up.
1. Don't Quit Too Soon.
After decades of working, it's tough not to dream of the day when you can retire. People in their late 50s see the numbers on their retirement account statements, and they think, "Wow, that's a lot of money! One more bad Monday at work, and I'm retiring!" The decision to retire can be more emotional than logical. But when you retire early, not only do you cut down on the time you have to save money, but you also extend the amount of time you'll need that money.
2. Don't Rely Too Much on Hope.
After you retire, the amount of risk you take with your finances should change. Many keep the same investment strategy they've always had, hoping for big returns. But in retirement, it's not so much about how much money you can grow anymore; it's about taking distributions. You're not gambling with some far-off future—you're risking the money you need to live on right now. If there's a serious downturn — such as the one in 2008 when the markets dropped 40% for a time — you might need to wait quite a while for your investments to recover. This could seriously disrupt your distributions and you may not be able to easily recover from that loss.
3. Don't Cash in Too Early.
Many people regret drawing from Social Security at age 62 instead of waiting until they reached their full retirement age, or even longer, when they would have received larger monthly checks. They said, "I've paid into it long enough; I'm ready to get something back." Or maybe they started dipping into their IRAs at 59½, then their savings and then they're forced to take Social Security sooner than they planned. They're winging it, without a strategy to address taxes and other expenses—and eventually they realized they could have problems sustaining the lifestyle they wanted on the money they had left.
4. Don't spent too much, plan too little and enjoy too late.
Retirees often overspend in the first few years. They have their health and this newfound freedom, but they don't have a plan to address their income needs. They withdraw too much too fast to pay for that new life without considering the consequences.
But there are also those who regret not doing enough in retirement. They save every penny and are afraid to do anything. Or they just don't have any ideas at all for what they'll do with their leisure time — something that will get them out of bed in the morning. And then, when they start losing their health, they're sorry they didn't have fun while they were able.
As with every aspect of retirement, balancing the desire to get out and enjoy life versus finding the money to pay for it requires planning ahead. The planning process goes better with the help of an experienced professional. Look for a fee-only, fiduciary financial planner to help you build a game plan around your goals and particular situation. It certainly beats living with regrets.
If you would like some help avoiding these mistakes, contact my office at rdunn@dunncreekadvisors.com. I love helping people map out the road to a happy retirement. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.