If you’re starting to wonder if you’ll ever have enough money saved to retire, you aren’t alone. According to the Employee Benefit Research Institute’s 2022 Retirement Confidence Survey, only 28% of respondents said they were “very confident” they would have enough money for a comfortable retirement. And 58% said preparing for retirement makes them feel stressed.1
Planning for retirement can be challenging, even if you start early, have help, and earn a good living. We have compiled actions, that people often use, that can throw a retirement off track.
Failing to have an income plan in writing
Near retirees and retirees often worry about outliving their money. Yet, many 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.
The fix: Draw up a written income plan. If you use it correctly, you’ll always know where you are and where you are going. You may have to make adjustments each year, as priorities and costs are bound to change as you move through retirement. But if you stick with your income plan, it should help keep you on course.
Making poor investment return assumptions
If you’re counting on a 9% return to make your plan work, for example, and the market doesn’t cooperate, you will most assuredly run into trouble.
The fix: Be a bit conservative when making assumptions about market performance. As a rule of thumb, your income plan should use a withdrawal rate of no more than 4% from your investments to help provide income and help ensure that your investment portfolio is positioned in a way that avoids wild swings in the market.
Taking too much risk with investments
Some people get so caught up in accumulating money they forget to protect what they have in or near retirement. Others mistakenly think they have a moderate or conservative portfolio when what they actually have is quite aggressive.
The fix: A financial advisor can do an exhaustive review of your investments, simulate how they would react to a historic market crisis, and assess how vulnerable your current portfolio might be to future corrections. Once you have an idea of your true risk exposure, you can reconstruct your investment strategy to suit your needs and goals. This is huge when you’re counting on a stress-free and enjoyable retirement.
Being so miserly you can’t enjoy retirement
Sometimes retirees are so uncomfortable with seeing the balance of their retirement account go down that they spend less than they can afford. Then, 20 years into retirement, they turn 85 and realize as time has ticked away, they haven’t done anything.
The fix: The goal here is to find a middle ground, and a bucket strategy for your assets can give cautious retirees the confidence they need to enjoy their money throughout their lifetime. In this approach, each bucket provides for a different need.
Blindly believing when your financial advisor says you’ll be OK
If you don’t have a plan, or you don’t understand your plan, you aren’t OK, no matter what your advisor says.
The fix: If you’re paying for advice, you should be getting it. If your financial professional can’t make time to build a plan for you or isn’t able to do so, you should be concerned. Or, if he or she is focused primarily on growth versus conservation and income it may be time to move on.
Don’t let these and other mistakes cause you to come up short in retirement. A good plan can help you overcome bad choices – and the sooner you get back on track, the better you’ll feel about your financial future.