Retirement Plan Pitfalls
What is a Financial Planner?
A financial planner is a professional who advises clients on a variety of matters from strategies for investing and saving to funding a college education or a new business while preserving wealth well into your retirement years. They must have a thorough knowledge of subjects such as personal finance, taxes, estate planning, investments, and economics.
What is a Retirement Plan?
A retirement plan is a strategy on how you will accumulate and sustain enough money to live on after you stop working. It incorporates your personal goals and assumed investment performance to formulate a projection on how long your money could last under various scenarios. The purpose is to have reasonable assurance that you will be able to maintain a financially comfortable lifestyle throughout retirement.
What are Some Common Pitfalls?
Not Sticking To Your Plan
A retirement plan should include a budget for living expenses as well as account for periodic expenditures like vehicle replacements and other personal goals over time. One of the quickest ways to deplete your nest egg is to spend more money than expected. Impulsive purchases, emergencies, or living above your means can quickly put your plan in the red. You only get one chance at retirement and going back to work may not be a possibility for you.
Claiming Social Security Too Early
Many people want to retire early and depend on Social Security payments as soon as they are able. Taking it at age 62 rather than waiting until full retirement age could net you ~30% less in payments over your lifetime. For every year you delay past your full retirement age, you get an 8% increase to your benefit. A financial advisor can illustrate claiming options that would be best for you.
Not Minimizing Taxes
It is important to understand the difference between tax-free and tax-deferred accounts. Having knowledge of the tax treatment for capital gains, interest, and dividends will make a big difference in the amount of taxes you may owe. Let a professional financial firm like PFM map out a tax efficient strategy tailored to you.
Forgetting The Inflation Factor
The hidden drain to your retirement accounts could be the effects of inflation. The dollars in your portfolio will not buy as much in the future as they do today. If you fail to plan for inflation, you may run short and not be able to meet your living expenses.
Not Planning for Longevity
The average life expectancy in the US is about 76 years, but according to the Institute of Aging, by the year 2050, the 85+ age group will represent about 24% of the older adult population. Your retirement projection should illustrate how you will cover your living expenses well into your 90s.
Investing With Emotion
Uncertainty, panic, or greed could cloud your decision making when it comes to your investment portfolio. Having an experienced advisor can take the guesswork out of managing your accounts and be the voice of reason during volatile markets.
Call PFM Today to Become Retirement Ready
Call PFM today to schedule a no obligation meeting to learn more about how our comprehensive financial planning can give you peace of mind as you become retirement ready. We can help