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ST. GEORGE –The road to a successful, stress-free retirement often comes with potholes that are harder to tackle than you think.
There are numerous critical problems to be solved, complex concepts of money to be understood, and a confusing array of products to consider. This is why you need to exercise the utmost care and avoid retirement planning mistakes that you will never be able to recover from.
Fortunately, some of the most common mistakes that can ruin your wealth are the easiest to avoid. With a little awareness, education, and creative planning, early retirees and retirees can work around some common retirement and income planning mistakes.
Below are common mistakes to avoid.
Trying to predict future expenses instead of focusing on future income
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Given the current inflationary environment, it is understandable that many seniors are obsessed with calculating how much things will cost as they age.
Early retirees and retirees expend a lot of mental energy taking care of things like long-term care, health care, and debt reduction. While these things are important to address, I believe that focusing your efforts on building retirement income is making smarter use of your intelligence. After all, with sufficient income, you will be better equipped to handle whatever life sends you.
Failure to understand fees that are both obvious and hidden
Financial products and services are jam-packed with fees, both disclosed and hidden. Lots of people are eager to get their financial houses in order, so employ whatever strategy their advisor suggests, often without adding up the cost. Many seniors are shocked to learn they lost 3% or more of their wealth after paying an advisor and paying trading and product fees.
If you don’t go through your plan with a fine brush, scrutinizing every charge, and asking questions, you can end up losing money unnecessarily.
Don’t be realistic about risks
No one can accurately predict the stock market, no matter how much data they have. The unpredictability occurs because investing is often an emotional exercise based on fear, greed, and perception. There are no real means of telling whether a change in the political or economic landscape will startle people and drive them to flee.
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While many advisors ask their clients about their “risk tolerance,” most won’t tell you that there is often a discrepancy between risk tolerance and the risk they can afford. Can you afford to lose money in the second part of your financial life?
Leave a qualified plan to your heirs
At first glance, it makes sense to hand over an individual retirement account or other qualified plan to a loved one. In reality, however, there can be nasty tax ramifications if you leave your IRA or 401 (k) plan to a loved one. Before deciding whether to inherit your plan, be sure to consult your tax professional to uncover potential tax issues and suggest alternative strategies such as trusts or life insurance.
Do not take into account tax implications
Many seniors are amazed to find that taxes have followed them into retirement. Most of the sources of income that you have in retirement are taxable. For example, if you don’t have your money in a Roth IRA, withdrawals from qualifying plans are taxable.
Social security benefits can also be taxable, especially if they are your only source of income. Your trusted advisor, certified accountant or tax professional can help you develop the ideal strategy to avoid paying more tax than the law requires.
In summary
While creating a prosperous and hassle-free retirement is quite doable, you need to direct your energies towards the future. Ideally, retirees and early retirees should work with a knowledgeable, customer-centric advisor who can help them avoid financial mistakes and guide you towards your ideal financial future.
Copyright © Lyle Boss, all rights reserved.
Lyle Boss is a member of Syndicated Columnists, a national organization that advocates a fully transparent approach to money management. As an asset protection instructor, he has helped thousands of seniors find their financial retirement options. Its clients include government employees, teachers, doctors, farmers and business people to name a few. Boss has been actively teaching advanced estate planning and wealth preservation for more than 20 years in locations like the University of Utah and in over 200 Senior Retirement Consumer Education Workshops throughout Utah, Idaho, and Wyoming. Boss and his wife Deanna live in South Ogden and St. George, Utah.
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