Avoid These Retirement Planning Mistakes


The leading edge of the eighty million-plus Baby Boomers is just entering retirement.  Considering leaving your full-time job for the leisure of retirement can be a sobering thought as you realize that you’ll no longer have the security of a steady paycheck.  When planning your retirement, avoid these common mistakes:


  • Being too conservative with your investments.  During the years leading up to retirement, often referred to as the accumulation years, your portfolio may have necessarily been heavily weighted towards stocks and stock mutual funds.  As a retiree, your distribution years will most likely necessitate a shift from stocks to bonds, CDs or money market accounts.  However, to make certain you have adequate long-term growth in your portfolio, consider maintaining a minimum allocation to stocks and stock mutual funds of 50%-70%.
  • Underestimating how long you will live.  I visited with someone recently who intended to use their retirement funds until age 80 at which time they said they’d be happy to reduce their standard of living based on Social Security.  Given the pace of medical advances and the rising costs of medical care, this is not a good strategy.  By managing your expenses and cash flow from the beginning of your retirement, you should be able to maintain your lifestyle as long as you live.
  • Taking Social Security too soon.  If you are in good health and have a family history of longevity, you may be well served by postponing Social Security benefits until your full retirement age or even age 70.  For example, if you were born after 1942 and you postpone taking Social Security benefits until age 70, your income benefits will rise 8% per year between your full retirement age and age 70.  This increased benefit plus cost of living adjustments will be paid to you as long as you live.
  • Quitting cold turkey.  Consider the benefits, both financially and psychologically, of continuing to work part-time during the early years of your retirement.   For someone who is used to working forty to sixty hours or more a week for the past forty-plus years, stopping altogether can be quite a shock to your system.  Carefully consider how you will spend your time and how you will continue to contribute to others during your retirement. 
  • Over-estimating how much you can withdraw from your investments each year.  Inflation is alive and well and will erode the value of your money if you are not careful.  The scale we use is: 4% or less is conservative; 5% is moderate; 6% or more is aggressive.  Check your annual withdrawal rate.  If it is 6% or more consider how you might cut your expenses.  Having a more flexible travel schedule allows you to take advantage of off-season deals on vacationing as well as seek out deals on just about everything.  One of the best ways to reduce expenses and raise capital for investing is to move into less expensive, more energy efficient housing.  Remember, the first $250,000 of profit on the sale of your home ($500,000 if you are married) is tax free.
  • Not buying long-term care insurance.  Purchasing long-term care insurance can provide you with financial back-up should you or your spouse require an extended nursing home stay or in-home nursing care.