As numerous greeting cards have proclaimed, for many Americans life really begins at retirement. Without a boss expecting you to punch a time clock five days a week, you’ll suddenly discover hours that you didn’t know you had. You’ll find time to travel, relax, enjoy your favorite activity (yes, napping counts) and spend more time with the people you love. At least that’s the way it’s supposed to work—if you avoid these financial missteps when preparing for your golden years.
Spending Too Much and Too Soon
After years of diligent retirement saving, it can be tempting to dip into your coffers too soon. Don’t raid your nest egg to buy a dream home, travel the world or help a grandchild with college before you’re officially retired. And once you have collected that last paycheck, give yourself at least 12 months to adjust to your post-retirement income before you start making large, nonessential purchases like those mentioned above.
Taking on Too Much Risk
If you’re approaching retirement with a balance that you know is less than what you need, it can be tempting to engage in risky investment strategies. While penny stocks and commodities trading might have been fine when you were in your thirties, most advisors recommend a more cautious approach with your portfolio in your later years. If you must, postponing your retirement to amass a few more years of savings and interest is preferable to risking it all.
Taking on Too Little Risk
On the other hand, being overly conservative can also take a bite out of your retirement. You might have an adequate portfolio with a broadly diversified set of investments, but if they are all fixed-income, you may be in trouble. For example, according to Forbes, 10-year U.S. Treasury bonds pay near the current inflation rate. Longer-term bonds pay even less than the historical inflation rate. This means that inflation could reduce a bond portfolio income of $14,000 a month at age 65 to around $8,000 by age 85.
Slashing Your Insurance
You’ve paid off your mortgage. Your kids are in college or working in careers of their own. It may seem like you have less to worry about on the insurance front, but now is not the time to take chances with your coverage. In fact, you may want to buy more to protect your retirement income further. For example, upgrade your homeowner’s insurance coverage to a policy that covers replacement cost. Increase the liability coverage on your auto insurance policy in case your abilities decline as you age. Finally, consider an umbrella policy to provide peace of mind for everything else.
Assuming You Won’t Live Forever
Okay, that’s actually a safe assumption; however, you shouldn’t base your retirement savings plan on too early an exit from this life, either. According to the Centers for Disease Control and Prevention (CDC), if you live to the age of 65, you can expect to live another 19.2 years (or to 84). And if you live to the age of 75, you could last another 12.2 years (or to 87). It’s all too easy to outlive your retirement savings, so it’s best to choose a higher age and ask your financial advisor to create a plan around it.
Whether you’re 35 or 55, thoughts of the future should be pleasant, not panic inducing. If yours are the latter, contact your financial planner today to learn more about the financial missteps you should avoid to ensure your retirement plan is on track.