Common Retirement Planning Mistakes – Part 1: Only the Wealthy Need a Plan

This is the first of a four-part series of articles on Common Retirement Planning Mistakes. 

Preparing for retirement these days presents a number of complex challenges. There are five primary factors that need to be taken into consideration when developing and managing your retirement strategy:

  1. Taxes
  2. Healthcare (insurance)
  3. Estate (legacy)
  4. Investment
  5. Income.

    The Pieces of the Retirement Puzzle
    The Retirement Puzzle

Each of these fit together to create a sound retirement plan. If you don’t have a clear picture of what the end result should look like, it’s like trying to assemble a complex puzzle without the picture on the front of the box.

Ever-changing laws and regulations, as well as market fluctuations, make it essential for most people to seek the help of retirement planning professionals to put all the pieces of their retirement puzzle together.  Yet, every year, thousands of people still attempt to retire without seeking professional advice. In most cases, this happens without having developed any type of strategy at all!

Over the years I have heard many reasons why people haven’t done a better job of developing a strategic retirement plan. This series of articles will cover four common retirement planning mistakes that could keep you from achieving your retirement goals.

Retirement Mistake One: Only Wealthy Individuals Need a Plan

The first misconception I hear a lot has to do with the idea of quantity over quality. Many retirees truly believe because they’re not “wealthy” (quantity) there’s no reason to have a quality retirement plan. The mistaken thought is “only the rich and wealthy need to do retirement planning”. This can be a huge mistake for retirees.

I don’t blame the average person for having this misguided notion. The financial industry spends a lot of money annually to market to higher net worth retirees. Why? Because in many respects, high net worth clients are more profitable to them. Many retirement planners aren’t interested in those they perceive to be the “little guy”.

However, this doesn’t mean it’s unimportant for those with less wealth (whatever that means) to do planning or that they should be ignored. In fact, in our firms’ 25 years of experience, I can tell you that the size of wealth is not the most important factor in a healthy and happy retirement nor is it a reason to avoid planning. How do you define “wealthy” or “rich” in the first place? How do you know where you fall on the spectrum between “little guy” and “rich guy” unless you’ve had help evaluating your unique situation?

This top retirement mistake can be so detrimental. While there may be lower net worth individuals who retire just fine without professional financial planning assistance,  the more important questions are: “Will they stay retired? Will their income last? Did they prepare for the transition to the next generation or their spouse? Are they prepared for risks that could put an otherwise great retirement in jeopardy and could they have seen it coming and prepared for it with a little bit of planning and guidance?”. These crucial questions show you the critical need for a plan.

If you boil it all down, it doesn’t matter what your income is or what your net worth statement shows. If you have a paycheck or have had a paycheck at some point in the past, you should have a strategy that is defined, written down and coordinates the five important areas of retirement. The point of having a retirement strategy is to help ensure you can continue living life to its fullest every day and do so with confidence.

Do you have a plan? Do you have confidence that your retirement will be what you’ve always thought it could be? Nothing is guaranteed and I understand that; however, what if you were able to make an adjustment that could benefit you immeasurably down the road, wouldn’t that be worth your time to find out how right now, while you can still make adjustments?

We’ve found the happiest retirees are not those with the most wealth but they do exhibit some common traits. Here are the factors that really have an impact on a successful retirement:

  1. They have a written and defined plan that coordinates the five puzzle pieces of their retirement.
  2. They have minimal to no debt to service, have minimized their expenses or have saved to be able to afford their desired lifestyle.
  3. They have a balanced tax structure in their savings (in other words, not all their money is in tax-deferred accounts).
  4. They have coordinated their investments with the needs dictated by each piece of the plan.
  5. They have a plan for the source from which their income will originate and for how long it will last.
  6. They have mitigated their risks to the extent possible given their unique situation.
  7. They have simplified and refined how they will pass their estate to the next generation.

As the old saying goes, “If you fail to plan, you plan to fail”. This is true no matter how small or large your income, assets and investments. So, what about you? Do you have a plan? If not, it’s never to late to start.

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