People make the same money mistakes all the time, especially when it comes to saving for retirement. Some of these common mistakes can be disastrous for a retirement plan. At Kiplinger, Edward Grosko, founder and partner of Integrated Wealth Management Inc., listed six common mistakes that people make that can kill their retirement, and offered some ways to remedy these errors.
1. Not Having a Plan in Writing
The biggest worry people have about retirement is whether they outlive their money. Despite this, Grosko noted that many people “are just winging it, moving to and through retirement without a plan that tells them how much they will need from year to year, or where to find the money that will replace their paycheck, or even worse, how long their money will last.”
One way to remedy this is to have an income plan in writing. If used correctly, a written income plan can be like a map and compass: It can show where the investor is and where they’re going.
2. Using Unrealistic Return Assumptions
Investors depending on a 9% return to make their plan work is a recipe for disaster. When making assumptions about market performance, it’s important to be conservative. A good rule of thumb is to use a withdrawal rate of no more than 4% from investments to provide income. An investment portfolio should be positioned to avoid wild market swings.
3. Being Too Risky With Investments
Some people get so caught up in accumulating money that they forget to protect what they have in or near retirement. Others wrongly believe that they have a moderate or conservative portfolio when it’s in fact quite aggressive. A financial advisor can review an investment portfolio, offering stress tests and assessing how vulnerable it might be to future corrections.
4. Being Too Stingy to Enjoy Retirement
Some retirees are so uncomfortable seeing their account go down that they don’t take the trips they always planned on or visit their grandkids as often as they wanted. Then when they turn 85, they realize they haven’t properly enjoyed their golden years.
The goal is to find a happy middle ground. A “bucket” strategy for assets can give cautious retirees the confidence to enjoy their money throughout their lifetime. A “safety” bucket can be used for vacations and big purchases. An “income” bucket would include assets protected from the market and reliable income streams to be used for paying bills. A “growth” bucket can hold riskier assets to build wealth and counter inflation.
5. Giving Away Too Much (Too Soon) to the Kids
Many parents have grown children who still depend on them for everyday living expenses. Some parents loan their kids money at low or no interest or agree to co-sign on a car loan or mortgage. Others may gift money to their children too soon and then come up short on what they need for themselves early or later in retirement.
When parents approaching or in retirement give too much of their money to their kids, it doesn’t help anyone. When it comes to gifting or lending money to their children, parents should make sure that they are okay first.
6. Blindly Believing Everything Will Be Fine
If you don’t have a plan, or you don’t understand your plan, you aren’t okay. A financial advisor should take the time to build individual plans for their clients. If they can’t, or don’t, that’s a problem. If an advisor is primarily focused on growth vs. conservation and income, it may be time to move on.
With more investors considering their retirement needs looking ahead, Nationwide offers a variety of actively managed ETFs within equities for financial advisors looking to meet the income needs of their clients. These funds cater to a range of investment exposures and strategies, all seeking income generation with a measure of downside protection within the major indexes.
For more news, information, and strategy, visit the Retirement Income Channel.