MOST OF US DON’T START THINKING ABOUT RETIREMENT UNTIL WE’RE IN OUR LATE 50S OR EARLY 60S. BY THEN, IT MIGHT BE TOO LATE TO MAKE CHANGES. HERE’S WHAT TO START THINKING ABOUT IN YOUR 40’S
1. LACK OF A RETIREMENT VISION
Retirees often lament the end of work life. They say things like, “What do I do now? Grow roses? Paint the fences? Then what?” Being lost about what comes next makes it harder to plan financially. It’s important to think it through before retiring so you know what to prepare for. A good time to start visioning for
retirement is about ten years before retiring. You can do it sooner, but plans are likely to change more the earlier you start planning.
2. REFUSAL TO CHANGE THINKING ABOUT MONEY
The biggest thing about retirement is learning how to think differently about money. When you hit retirement, it’s no longer “Will my paycheck cover this?” Now it’s “Does my remaining money support this?” No one else is giving you money to spend. You have what you have, and it must last. Maybe for longer than you think if you live a long time. Pre-retirees need to shift from “make more money” to “use the money I have to pay for a lifestyle I want in retirement.”
3. NOT HIRING PROFESSIONAL FINANCIAL HELP
Another area of erroneous thinking is going it alone. Many of us have a do‐it‐yourself mentality; we’re used to going online to do our research. We think this holds for financial planning, as well. Without professional assistance, pre-retirees typically under or overestimate their financial needs.
To find a financial advisor, you can hire a fiduciary financial planner who works as a consultant or coach to go through your financial and retirement strategies with you. Unlike fee-based financial planners who take a fee from investments, you pay a fiduciary advisor directly for consultation services. The advisor might better grasp all the financial planning concerns you face, not merely whether your investments will give you the return you want.
4. FAILING TO ESTABLISH A FORMAL PLAN
Future retirees (that’s all of us) often fail to establish a formal written retirement income plan. The plan should include both a detailed budget and forward‐looking tax mitigation strategies. Sometimes retirees don’t understand that formal plans give them (a) the ability to use a very disciplined approach—not react emotionally to the market—and (b) assurances that there’s a way to address unexpected events. When making your plan, create several “what if” scenarios so you can create backup plans, too.
5. PULLING INVESTMENTS TOO SOON
Some financial advisors have suggested that people should have a lump sum of 20 to 22 times the amount they need to generate annually when they retire. For instance, if you need $40,000/year
to live on, including all your expenses, and potential medical needs, you should have $800,000 saved. The earlier you start, the more you can use compounding interest and investments to make this amount. For example, putting away $300/month starting at 20 years old will mean having $800,000 by 60 years old at a 7% rate of return. But you can’t play it too safe if you’re 50 years old and short by $400,000. Pulling all your money out of the stock market would mean bringing your earnings to a halt while leaving it in could mean another $400,000 over the next ten years. Here’s a good simple compounding interest calculator.
https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
6. NOT REALLY DOWNSIZING
Many pre-retired homeowners think they’ll be able to downsize to save money. But buying a smaller home or renting somewhere less expensive doesn’t always equal savings. Often people don’t save much as they think they would. For example, if someone sells a $500,000 house, they might spend almost as much purchasing a smaller but nicer new home. Between closing costs [buying and selling], moving and buying new furniture, they may spend about $100,000. They wouldn’t have spent that money if they’d stayed put or truly downsized. Ideally, downsizing means spending as little as possible on the downside to preserve as much of the equity you can from selling your home.
7. NOT PLANNING FOR PARENTS
Many of us in the pre-retirement phase of life are only thinking about ourselves, our vision, and how much we need to support that vision. We forget that we might have elderly mothers and fathers to support. Yet statistics show that only a small percentage of pre-retirees integrate their parents’ financial needs into their comprehensive financial plans. If you have parents to care for, examine their financial situation.
8. NOT PLANNING ENOUGH FOR HEALTHCARE
As we age, we’d like to think we’ll be one of those healthy older people who still jog or manage to outlive the odds. But our bodies are unpredictable. Most of us will need some form of long-term care at some point. Nothing is more heartbreaking than to burden our children with those expenses or, worse (depending on your point of view), go into a public facility that doesn’t provide the best care. Pre-retirees should examine long-term care policies’ costs and resources for long-term care. This needs to start early so you have plenty of time to organize your finances to include that care.
9. FAILING TO MAXIMIZE SOCIAL SECURITY &
PENSION BENEFITS
It’s important to know well in advance the various strategies you can employ for claiming your benefits. Should you claim all you can get as early as possible? Should you postpone? How much can you earn from working and still get maximum benefits? Many strategies for maximizing your pension and security benefits are not publicized, and the difference between the best decision and the worst possible decision of when to elect … “can be well over $100,000,” according to an article by the International Association
of Registered Financial Consultants. Every penny counts in retirement.
10. OVERSPENDING ON YOUR KIDS
You’re the one who’ll soon be retiring. They’re entering their prime earning years. Let them take on the burden of financial stability. They may have to do with less. They may struggle more. But you’re both better off if you’re more financially stable in your golden years.
OWNING A HOME EARLY IN LIFE IS ONE KEY TO A FINANCIALLY SECURE RETIREMENT. IF YOU OR
SOMEONE YOU KNOW NEEDS TO BUY THEIR FIRST OR SECOND HOME OR IS CONSIDERING BUYING A
RENTAL PROPERTY AS AN INVESTMENT, PLEASE CONTACT ME FOR REAL ESTATE HELP
