The cost of a financial misstep in retirement can be devastating. During retirement it is hard to “earn” your way out of poor decisions. Poor planning or a big loss during retirement can ruin your financial security. In this episode, I discuss the most common retirement “screw ups” I’ve seen and how you work to avoid them.
7 Ways to Screw Up Your Retirement
Having unrealistic return expectations for your investment assets (too high in 1990s, too low in 2007-08)
Crazy as it sounds, in the 1990s people retired thinking they could earn 15%-20% per year and take 10% from their assets for retirement income.
Today, we see the opposite extreme. After 2008-07, people aren’t so optimistic about retirement. In fact, they are down right pessimistic.
Not sticking to a spending plan and reviewing it annually
When you retire it is essential that you become more intentional about your spending. In retirement your earnings power diminishes. You’ll have less opportunities to earn your way out of poor spending choices.
Set a spending plan and review it annually. This will allow you to adjust as your situation changes.
Falling in love with an investment or investment strategy
Real estate; Gold; Rental houses; Tech stocks; Dividend stocks. I’ve seen it all over the last 23 years. Just because you’ve had great success with a particular investment or strategy doesn’t mean it is the be all end all. Managing assets during your retirement years is more about consistency and protection than stellar returns. The past is littered with “sure thing” investments that have gone bust. Just look at the list above.
Financially supporting/enabling adult children
I’m not sure where the line is between occasionally helping a child out and enabling them. We’ve seen retired parents destroy their financial security by bailing out their children from there poor choices. A good litmus test is to ask yourself: Are you preparing your children for the path, or the path for the child?
Starting or investing in a small business
Starting a business or investing in a new venture is exciting. Be careful. They all sound exciting at the start but most small businesses fail. Retirement is not the time to invest a lot of money in an entrepreneurial dream.
Buying expensive lifestyle toys (vacation home, R.V. or land)
Go ahead and dream big but be careful about spending big money on your retirement toy. It’s very common to see older retirees saddled with debt on an expensive R.V. or vacation lot that isn’t used and worth a fraction of the loan amount.
Sticking your head in the sand when it comes to your financial life
Not being aware and willing to address the financial realities of your retirement is a sure way to screw it up.
Retirement Tip of the Week
Complete your estate plan. Yeah it’s boring and can cause some uncomfortable conversations, but get it done. Please.
Tips to getting the estate planning questionnaire done:
- Don’t try to do it at home
- Set an appointment with your spouse outside of the house to complete
- Have your advisor or a trusted friend interview to complete it
Tips for Keeping it up-to-date:
- Review it once a year with your spouse and trusted advisor
- Review the same time each year (like a holiday or annual family gathering)