Retirement planning is something that every one of us will have to deal with at some point in our lives. Retirement is coming. It doesn’t matter if you retire with a nifty gold watch, or get tossed on your can from an ungrateful employer! I’ve witnessed some very successful retirees during my twenty year career.
The one thing they all had in common – planning for uncertainty or unknown variables.
Financial planning is really nothing more than accurate estimations regarding important retirement variables. Things like life expectancy, health care costs and savings. Once you get some of these assumptions figured out, you can then develop the plan of action that will get you to retirement. I’ve also witnessed individuals that did this poorly or not at all, and ended up having to postpone retirement. Planning will definitely affect your quality of life in retirement.
So here are your step-by-step instructions on how to royally screw up your retirement:
Step 1. Underestimate how long you’ll be retired. A few years ago, I used to do a seminar about how important life expectancy is to a successful retirement. In that seminar, a 65-year-old female had a 25% chance of living to age 92! Everyone wants to live a long productive life, but you better plan on it. If you retire at 65 and live to age 90, that means you were retired 25 years!
To compensate for needing income for over 25 years, you must be careful. When I do a financial plan I always calculate life expectancy at 90-100 years of age. That way if I make a mistake, my client will have more money. I have never had a client say, “Gee thanks David, I had too much money for my retirement!”. A final thought, review your investments and don’t be too conservative. I can’t tell you how many “conservative” investors find themselves in a precarious situation with money running out before they pass to the great unknown.
Step 2. Be a big spender. After years of slaving away in the salt mines, everyone deserves a few nice travel adventures and some nice dinners. Unless you’ve planned ahead, and most people don’t, you won’t be able to spend like a drunken sailor on leave. If you do, you may find yourself in trouble as the retirement advances. Don’t take the attitude that, “I may die tomorrow”, because you probably won’t. I always say, plan like you’ll live forever.
A better approach may be to live below your means. Spend less and enjoy the big balance in your bank and brokerage accounts. Develop some sort of budget, and only spend extra on the things that really matter to you, or things you want to experience in retirement. By living frugally, your savings will stretch much farther and you’ll reduce the risk of outliving your money.
Step 3. Follow crappy investment advice. Predicting the markets is a fools game, even for the experts with decades of experience. I always tell my clients that I’m not a fortune-teller and that my crystal ball is in the shop. What I mean is that I don’t try to tell people what will happen. No one knows for sure. Investment advice is also different for everyone. What works for a 60-year-old doesn’t work for a 30-year-old with young children. What works for one person may be completely inappropriate for the next person. The “perfect” investment depends on your personal situation and goals, your risk tolerance, years to invest and the amount you can invest.
I’ve seen lots of advisors think that they will sell one product to everyone they run into. They sell the same thing over and over whether it is suitable or not. Take the time to seek out experienced advisors that are qualified financial planners. These individuals are required to put your interest first. Get a referral from friends, family or an accountant. One way to know for sure is if an advisor starts to recommend or discuss products before fully understanding your unique financial situation. This is a red flag.
If you are planning on retiring, make sure you plan for all the uncertainty and the unknown variables. It can be overwhelming to consider all the things that can screw up your retirement.
Have you started planning for retirement yet? Whether you have or not, give me a call for a second opinion at (859) 225-2596, or write me at firstname.lastname@example.org.