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To help guide people into a successful and thoughtful retirement, in 2015 STA Wealth launched it’s Retirement Done R.I.T.E.. By reviewing all of the available information and articles in the Retirement Resources section, retirees and pre-retirees can avoid many of the common mistakes and regrets that others have lived through in retirement.
Recently, the Employee Benefit Research Institute published it’s 2015 annual retirement confidence survey. In it, we can see that having a retirement saving’s plan can play a key role in your retirement confidence. In the survey, we find that only 22% of American’s are VERY CONFIDENT that they have enough money. That is up from only 18% in 2014, but is not saving enough the biggest regret or concern that Americans’ have? Below is a list of some of the common regrets, mistakes and worries that we hear at STA Wealth:
Leaving the Workforce Too Early
In 2013 an Associated Press-NORC Center for Public Affairs Research survey found that between one-third and one-half of all people retire involuntarily in any given year, usually for reasons of health (theirs or a loved ones). And of those that retire voluntarily, many do so with no real understanding of how much it will cost to live in retirement or if they have enough in savings to fund their retirement goals. What’s more, if they find that they must go back to work, it is difficult for older Americans to return to the workforce should they want to after retirement. In the AP-NORC survey, they found that 69% of adults age 50 and older who have searched for a job in the last five years have experienced a lack of available jobs, 63% had trouble finding jobs offering an adequate salary, and 53% said there were not enough jobs offering adequate benefits. 45% also experienced feeling “too old” for the available jobs, 43% have encountered employers being concerned about their age, and 32% were told they were “overqualified.” With that, at STA Wealth, we find that proper retirement planning is essential – whether retirement is planned or unplanned – so start today. If you do plan on working in retirement, check out the Retirement Done R.I.T.E. section where we discuss Future Work and Consulting.
Overspending in the Early Years
In the “Retirement and Cash Flow Planning” section of the Retirement Resources, we discuss many considerations about retirement spending and budgeting. We find that if you dip deep into your “nest egg” early, you are putting long-term retirement goals at significant risk. Over-spending in the early years (the first five or so years in retirement) make or break your retirement dreams.
Spending more now with the intention of “cutting back” later is NOT a plan. At STA Wealth, our planning process helps a client create and forecast their budget (with allowance for taxes and inflation) in retirement. We caution our clients to have balance in their spending now so that they can enjoy their golden years with less worrying about running out of money.
Not Traveling Earlier in Retirement:
Many clients state in their retirement plan that they have a goal to travel – to see the world and/or to see family. Travel is typically much more enjoyable when you are active and mobile than when you are reliant on friends and family to get around. There are typically two times in retirement: when you are healthy and when you are not – plan accordingly. If it is part of your plan, travel and see whatever your heart desires. It may also be prudent to plan to do so in the first five years of retirement. If you are healthy enough to travel after that, consider yourself lucky. Just make certain you don’t go too wild. When you build your retirement plan, budget carefully to make certain you will not run out of money. We talk about this more in the Retirement Resources where we discuss the Surprising Amount Retirees Spend.
Expecting Unrealistic Returns
Of course, having a spending and savings plan in key, but being sensible about your assumptions regarding your real ability to fund your retirement goals are just as important.
Many times, people plan using rates of return that are not realistic. When I started my practice back in the 1990s, everybody was expecting 10% to 12% percent returns, conservatively, while borrowing money and hoping for even more (remember when everyone thought that the “tech boom” would allow for 20% returns every year?). Obviously, those returns are not sustainable or reliable. At STA Wealth, we project more reasonable pre-tax returns of around 5% to 6% (assuming a 4% inflation rate) and always want to help clients know what is their personal Hurdle Rate – their individual minimum rate of return needed to reach their goals. If you have a 12% hurdle rate, you are taking a lot of risk in your plan. However, if we find that your hurdle rate is 3% to 4%, our experience is that you may have a good change of reaching your goals. With that in mind, it is very important to coordinate your current and retirement investment plan with your cash flow and retirement plan.
Not Planning for Leisure Time
Many of us, yours truly included, work so hard that we never slow down enough to think about what life would be like in retirement – with the kids out of the house and no job to go to every day. If you think you’ll be happy reading the paper and playing golf all day, you’re probably wrong. Most people need a reason to get out of bed every morning, get dressed and go do something, otherwise you are likely to be miserable. Happiness in retirement is closely correlated with the number and strength of relationships you have. Men, in particular, often lose the bulk of their relationships when they stop working because most of their friends are at work. This is by far the most important area to plan so as not to “flunk” retirement. A good plan of action? Have a hobby or two, a regular volunteering gig or even a part-time job to keep your mind active and yourself engaged in your community. We discuss this in the Retirement Resources and even more during my interview on the STA Money Hour with Dr. Paul Chafetz, PhD.
Starting Social Security too Early
Many of the people that come into our office to discuss their retirement and financial plan have no clue (or are concerned) about when to file for their Social Security benefits. In most cases we find that it is beneficial to wait as you can to claim Social Security. In our experience, most people are better served waiting until closer to 70 to activate Social Security benefits. Many times the difference in payout from age 62 to 70 is can be as much as $1,000 per month (or more). In the Retirement Resources, we write about this extensively. So, with life expectancies continuing to expand and the option to take half of the benefits paid each month as a surviving spouse, getting the most money for the longest period of time seems to make the most sense for someone in reasonably good health.
Financial Planning and Investment Advice offered through STA Wealth Management (STA), a registered investment advisor.
STA does not provide tax or legal advice and the information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters or legal issues, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
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