7 Common retirement planning mistakes

Mistake #1: Claiming social security at the wrong time
According to FORBES, 96% of Americans lose an average of $111,000 in social security income because they claim their benefits at the wrong time. That’s a big mistake.
Mistake #2: Not having a strategy to reduce your taxes in retirement (plus RMDs)
A recent survey by Nationwide Retirement Institute stated that 57% of Americans rarely consider how much they’ll be paying in taxes during retirement. So the biggest thing you can underscore in this segment is that the big mistake here is (1) not understanding the importance taxes will play in retirement; and (2) not taking advantage of tax planning.

Mistake #3: Not having a plan to generate income in retirement
Here you can talk about the current challenges retirees face for generating income. The Federal Reserve recently announced that interest rates will remain near 0%. Low interest rates make it next to impossible to get any kind of return on money you put in safer investments including CD’s, savings accounts, or other fixed income assets. With fewer options to generate income it’s more difficult to replace your paycheck. Investing too much in stocks could be risky at this stage of the game and threaten your financial security.

Mistake #4: Your investment portfolio doesn’t mirror your appetite for risk.
The mistake here is people often make their investment choices, and then they never update and rebalance their portfolio. Markets change. And before you know it, your asset allocation is out of whack. So chances are you’re taking more risk than you know, or than you need to at this stage of the game. This is how people lose a lot of money in a sudden stock market correction or bear market. And since the market is at all-time highs, this is a great time to update, rebalance and reconsider your appetite for risk.

Mistake #5: Not recognizing the high cost of healthcare and long-term care in retirement
Point out how the soaring costs of Healthcare and Long-term care could take an even bigger chunk of your retirement savings in the future. Before the Covid-19 pandemic, a Fidelity study revealed that a 65-year-old couple (in 2020) could expect to spend $295,000 in healthcare and medical expenses in retirement.

Mistake #6: Not having a back-up plan for sequence of returns risk
Explain how retiring during a bear market (known as sequence of returns risk) could leave you with two-thirds less income for the rest of your life. (CNBC article) Withdrawing money early in retirement as your stocks decline could accelerate your investment losses. And when the market finally rebounds, the combination of your withdrawals and early investment losses makes it nearly impossible for your portfolio to recover.

Mistake #7: Not having a strategy to keep up with inflation
In early May Warren Buffet said, “we’re seeing very substantial inflation”. Have you noticed gasoline prices are rising? That’s a sign of inflation. Another investment strategist (CNBC article) believes inflation in the U.S. could rise above current 2.6% rate to 3 or 4%. According to LIMRA Secure Retirement Institute a 3% inflation rate could swallow up $117,000 of an average retiree’s social security benefits over a 20 year period. Inflation is the enemy for retirees living on a fixed income. When inflation lowers your purchasing power over time, things that were once affordable become unthinkable luxuries. Inflation impacts retirees even more when you consider they have to pay for other rising expenses like Healthcare and Long-term care.