I grew up enjoying baseball. I liked to play it, watch it on TV and listen to it on the radio. I can remember sitting in my room at night listening to the Washington Senators and the Baltimore Orioles on my AM transistor radio. I can still remember hearing the play by play announcer saying “Swing and a Miss!” If you were the team on the field, that meant that your pitcher and catcher had just outdueled the batter at the plate. If you were the batter, that meant that you were in a worse position than you had been just a few seconds earlier; or maybe even that you had just struck out. As a batter, you didn’t want to hear those words very often.
Engaging in retirement planning and even being in retirement is like being part of a multi inning game. There will be times when your performance will not be up to par. There will be times when things out of your control will set you back. There will be times when things happen that you never even thought were potential issues. And there will be times when you will feel outdueled. As part of your planning, you want to avoid as many “Swing and a Misses” as you can. Because if you have too many, eventually, you may strike out. And nobody likes to strike out.
Here is a list of our top ten “Swing and a Misses,” or the Top Ten Retirement Mistakes that we often see:
- Not knowing how much you spend on an annual basis. This is your most important If you don’t know this number, you can’t know if you are on track for an achievable and sustainable retirement. You can’t know if you have enough savings, if you need to work longer, if you need to downsize your home, etc.
- Not changing your investment strategy from accumulation based to decumulation based. Many people think that all they need to do is reduce the amount of stocks in their investment accounts and they will be fine. On the contrary: the foundation for your investment strategy should be based on your spending plan; when and how much you need to withdraw from your investment accounts. Your investment strategy will probably be different in retirement.
- Not knowing how you are going to make “7 days of Saturday” meaningful. During retirement, every day is like Saturday, and most people look forward to the day when they don’t have to go into work. But many people struggle with how to replace some of the benefits that work provides. Work provides identity, motivation, purpose, socialization and activity. How are you going to get “all of that” during your retirement years?
- Underestimating your longevity. Average life expectancy may be in the low to mid 80s, but that’s just average. Many people will live longer than that. In fact, with medical advances, it’s quite possible that you may live into your nineties. This is the biggest retirement risk, outliving your savings. You don’t want to under plan and possibly run out of money!
- Not considering taxes when you develop your income plan. As they say, “it’s not what you make but what you keep.” We put a lot of focus on saving taxes while we are working, but most people don’t spend enough time developing strategies to save taxes during retirement. You may spend 25-30 years in retirement. That’s a lot of potential taxes!
- Not knowing what you can do to improve your health in your 70s and 80s. I hear it all of the time: “our health is the most important thing to us.” But, just like financial planning doesn’t start when the goal should be reached, planning for good health doesn’t start in your 70s and 80s. Quality of life later in life requires intentional actions earlier in life. What good is your money if you can’t enjoy it?
- Not understanding the impact on your retirement income of continuing to fund your adult children’s expenses. A current trend is for parents to continue to help fund adult children’s expenses, well after the children are living on their own. It may not seem like a lot of money at the time, but the gifts can add up. You may want to create some projections to see if the help you are giving your children will impact your standard of living later in life. Also, read our blog The Impact on Retirement of Paying for College.
- Underestimating health costs and not having a plan for long term care expenses. Some studies indicate that an average couple might spend $280,000 on retiree health care. Medicare will probably be your insurance provider, and it is a complex system with many options, rules, costs and periodic changes. Studies also show that a majority of the population will need some sort of long term care - which can be expensive. Have you created an estimate of your potential health care costs in retirement? And, do you know how you will pay for these costs?
- Mishandling your retirement date. It seems that many people create an arbitrary date at which they want to fully retire without understanding whether or not they have the resources to support themselves. Proper consideration should be given to resources (pension, social security, investments, etc.), expenses, social security start dates, pension options, early retiree health care costs and investment strategies. You probably have one chance to get your retirement date right. Shouldn’t there be some planning involved?
- Not having a recession plan. A recession will probably happen during your retirement. Possibly even more than once. During recessions, the value of stocks typically go down. So that you don’t lock in your losses, you want to avoid liquidating your shares of stocks during a recession. You also want to manage the size of the drop in your portfolio. In short, you need a recession plan in place for your income and investments before the recession hits!
Retirement will definitely take place in and consume a large part of your Second Half. What strategies have you developed to minimize these retirement mistakes? What have you done to avoid hearing “Swing and a Miss?”