As more Baby Boomers approach their golden years, they are faced with a plethora of challenges. Especially for those with greater resources, the issues can be formidable. To the extent that these are effectively addressed, the promise of those Golden Years can be more readily achieved with less stress—both during and after the transition.
The Top 10 Most Common Mistakes to Avoid
Often people do not begin their retirement planning until retirement is upon them. Depending on your situation, most experts urge that this process begin no later than 5 years prior; ideally, at least 10 years or more.1
- Not Considering How Much Retirement Income Will Be Needed
Estimates vary as to how much a person’s or couple’s expenditures will change once they retire. Generally, 75 percent of current income is the rule of thumb. Obviously this has to be adjusted for factors such as projected mortgage (if any), downsizing of residence, travel, etc.
- Not Estimating How Long Retirement Income Will Need to Last
You hear it all the time: People are living longer, and hopefully you will be among the growing number of centenarians. Other issues may arise as well, such as the likelihood of needing to provide financial assistance to your parents, children or even siblings. Careful, objective planning and on-going management will be needed to make sure there will be enough income.
- Over-reliance on Social Security
This program was always intended as a safety net and not to meet all of a retiree’s income needs. With questions arising as to the system’s soundness, it is more important than ever to have sound planning in our financial affairs.
- When to Begin Taking Social Security Benefits
While it is certainly tempting to begin retirement benefits as soon as eligible, there are some important considerations. First and foremost is the fact that, while benefits can start as early as age 62 for eligible recipients, taking those early benefits can permanently reduce the monthly amount by up to 25 percent for a recipient’s entire lifetime! And if the recipient is working and earning over the prevailing threshold amount, they could see up to a 50 percent reduction of benefits until they reach full retirement age. On the other hand, some studies imply that recipients can benefit by taking early payments and investing the amount until full retirement age is reached, while others suggest that receiving a lower benefit for a longer time can be more advantageous. Before making any decisions, it is important to consult with your local Social Security Administration Office, then carefully review your circumstances with your tax and financial advisors.
- Dismissing the Possible Need of Long-Term Care
It is easy to dismiss the prospect of long-term care, particularly if someone close has not fallen victim to chronic diseases such as Alzheimer’s. The reality is that if not properly planned, the ever-increasing costs of long-term home and nursing care can rapidly deplete a lifetime’s savings. If necessary, long-term care insurance can make the difference between a comfortable, calm retirement and one filled with financial insecurity.
- Retiring Early Without Adequate Planning
An early retirement can present exponentially greater challenges to one’s savings. Not to say it should not be done, but it is particularly critical that a game plan be developed well ahead of time to help ensure there will be enough income to last.
- Assuming Retirement Planning is a One-Time Event
Especially with the rapidity of life’s changes today, a plan constructed even a year ago could be sorely in need of revision. Changes in the markets, interest rates, even our own personal preferences, necessitate periodic, on-going review and adjustments.
- Forgetting About Income Taxes
Just because we retire does not mean income taxes go away, starting with how best to handle lump sum distributions from a retirement plan. During retirement, income tax planning can be even more critical to preserve the nest egg. Especially with the onset of required retirement plan distributions, it is important to continually evaluate whether to take the minimum or to accelerate withdrawals.
- Believing in Retirement Nirvana
Just like “the grass is always greener…,” retirement can be seen as the cure for many of life’s woes. For those unprepared, the added time available can create a whole new set of challenges. Statistics show that the average new retiree spends about 45 hours a week watching television. For a fulfilling retirement, it is important to prepare for the psychological as well as the financial aspects. Just as a surgeon is advised not to operate on herself or loved ones, it is often invaluable to have independent, objective, expert advice in developing and managing a program for your retirement years.
Uncertainty over the economy and financial markets has many people concerned about their financial futures. For friends, relatives and colleagues who may find this information helpful, please feel free to share with them. Remember, for those who could benefit we offer a complimentary “Second Opinion” that can offer an objective financial review. Keep us in mind for those who may be seeking a wealth management practice like ours—one that delivers services according to the needs and perspectives of its clients.
1Anspach, D. (2016, November 17). Steps You Must Take Within 5 Years of Retirement.Retrieved from http://www.thebalance.com.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Wells Fargo Financial Network LLC (WFAFN) does not provide tax or legal advice. We strongly recommend an advanced tax and estate planning expert be contacted for further information. Any opinions are those of Mitchell Kauffman and not necessarily those of Fargo Financial Network LLC (WFAFN). The information has been obtained from sources considered to be reliable, but Wells Fargo Financial Network does not guarantee that the foregoing material is accurate or complete. Prior to making a financial decision, please consult with your financial advisor about your individual situation.
Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent. He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years. Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community.
Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara.
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