Retirement is so much more than an office farewell party and a final paycheck. There are actions you must consider during your career to help avoid common retirement missteps when the time comes.
Here are four of the most common mistakes to avoid:
MISTAKE 1: FAILING TO SET THE FOUNDATION
Many of us struggle with balancing fear and greed -- allowing emotions to drive investment and retirement decisions. Your financial plan is the groundwork you must refer to when your emotions swing with media headlines. A solid foundation will provide you with your desired investment allocation and the ability to test “what-if” scenarios. What if I retire early? What if we get a vacation home? What if I save in my Roth 401(k) vs. traditional 401(k)?
When establishing your foundation, include assumptions like inflation, longevity and tax rates. Consider using online resources or working with a certified financial planner to help you.
MISTAKE 2: BUDGET IGNORANCE
How much do you want to spend in retirement? This may seem like a fairly straightforward question, but it is one that takes careful consideration prior to retiring. Start practicing five years before retirement and revisit each year.
For example, your plan allows for spending of $7,000 per month but when you practice, you realize you actually want to spend $8,500 each month. This practice runway allows you to evaluate what retirement spending feels like and make changes (including deciding to work longer) if necessary. You can’t just wing it!
If you are considering a second home, don’t forget to include the carrying costs and travel expenses in your spending plan. It is rarely the cost of the initial purchase that gets you in trouble. More often, it is the carrying cost of the asset that ruins your plan. Another mistake is omitting health care costs, especially if retiring before Medicare eligibility.
MISTAKE 3: NEGLECTING YOUR EMERGENCY FUND
Set yourself up for success by having six months of your monthly spending in a liquid emergency fund. Retirees cannot control the sequence of market returns. Liquidity outside of your retirement portfolio provides another option during volatile times.
Many pre-retirees focus on paying off their mortgage before they retire, but neglect to build up their emergency fund. What if the paid-off house needs a new furnace that first week of retirement?
MISTAKE 4: RETIRING FROM SOMETHING, NOT TO SOMETHING
You are burned out and want to do something different from what you’ve been doing. The problem? Your career and life after retirement requires purposeful contemplation. If you retire blindly, you risk your emotional well-being and are more likely to encounter interpersonal conflicts in relationships.
What will bring you purpose? Do your kids want you visiting that often? What does your new social circle look like? Finally, and importantly, do these ideas of retirement mesh with your partner’s? Always retire to something, not from something.
NCA Financial Planners has helped clients retire for over 35 years. NCA Financial Planners, 6095 Parkland Blvd., Suite 210 Mayfield Heights, OH 44124, 440-473-1115; 440-473-0186 (fax); www.ncafinancial.com
Securities offered through Royal Alliance Associates, Inc. (RAA), Member FINRA/SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA.RAA does not provide tax or legal advice. Investment advisory services offered through NCA Financial Planners.
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