Many of the clients I work with may resemble you: a hard-working family who has saved over the years to pursue a comfortable retirement. While they’re budget-conscious, they aren’t familiar with the ins and outs of retirement planning, and they want to make sure they’re prepared for retirement and can protect what they worked hard to save.
It’s a reasonable concern because there are several little-known behaviors that could cause you to lose some of your valuable retirement savings. Here are some ways you could run into retirement trouble:
1. Misjudging Your Retirement Income Needs
You may be pretty proud of yourself for amassing a nest egg. But even if you have half a million or a million dollars saved, it may not be enough. If you plan to retire in your early or mid-sixties, your retirement savings will need to carry you through 30 years or more. Not to mention, you will encounter additional expenses such as healthcare costs, home maintenance, and taxes.
The best way to avoid financial stress in retirement is to set up contingency funds to cover the unexpected and work with your financial advisor to map out various retirement scenarios to see what your savings can handle. Then, find ways to maximize your savings to give yourself a cushion.
2. Putting All Your Eggs In One Basket
Diversification is one of the most talked about investment strategies for a reason. It protects your investments from market volatility. While you can’t eliminate risk from your portfolio entirely, you can cushion the blow if things go south. If you put too much of your money into one stock or even one sector of the economy, you put yourself in danger of losing your retirement savings.
Working with a professional, evaluate your portfolio’s current lineup and whether it needs to be rebalanced or diversified. Consider mixing up your stocks with global exposure and alternative investments. Look at the big picture of all your accounts, including employer-sponsored ones, and ensure you are diversified across the board.
3. Focusing On The Short-Term
Have you ever taken the time to create an investment philosophy based on your goals, personality, and risk level? If you have, do you stay true to your strategy or do you let your emotions take over when the markets go wild? The reality is that markets fluctuate every day. If you try to beat the market and get swayed by the daily headlines, not only will you cause yourself unnecessary stress, but acting on your emotions could damage your savings.
A 2015 Dalbar study shows how playing the market leads to underperformance. Buying high and selling low due to panic lowers your overall return and may jeopardize your retirement. What should you focus on instead? Maintaining a long-term perspective and a disciplined approach and refusing to ride the market roller coaster.
4. Not Taking Required Minimum Distributions
If you are 70½, you must begin taking required minimum distributions (RMDs) from your traditional IRA and employer-sponsored retirement accounts. It doesn’t matter if you need the money when you reach this age, you must still adhere to the RMD rules. What happens if you don’t follow through? The IRS will charge you an excess accumulation penalty of 50%! That can significantly harm your retirement savings amount.
As an example, if you are required to withdraw $5,000 and don’t, you will owe a whopping $2,500. That’s an unnecessary and avoidable loss. Depending on how much you have in an emergency fund, you may even be forced to use your retirement savings to pay the penalty, further damaging your future financials.
5. Taking Advice From The Wrong Sources
When you don’t partner with a trusted financial professional, you put your money in a dangerous spot. At this point in your life, you need to work with an advisor who will help you create a personalized retirement roadmap and work through various retirement scenarios, not just help your money grow.
An advisor can provide you with guidance and advice that you can’t put a price on. At ClearVista Financial, we want to help you find financial balance and spend life well, including feeling confident about your retirement. We work with you to establish a concrete retirement strategy that is designed to provide you with a predictable income stream. Let us help you find financial balance. Email me at firstname.lastname@example.org or call 800-491-4508 to take the first step.
Mark Trice is an independent financial advisor with nearly a decade of experience in the industry. As the founder of ClearVista Financial, his mission is to help people find financial balance in their lives and to spend life well. Along with providing financial planning and retirement planning to pre-retirees and 401(k) plan participants, he is also an educator. He currently holds the designation of a Certified Financial Educator® through the Heartland Institute of Financial Education. Mark has offices in Austin, Brownwood, Temple, and Waco, Texas. Along with serving clients in Texas, he also works with individuals in California and Virginia. To learn more, visit www.clearvistafinancial.com or connect with Mark on LinkedIn.