Retirement planning is one of life’s most important financial goals. Indeed, funding retirement is one of the primary reasons many people put money aside in the first place. Yet many of us put more effort into planning for our vacations than we do to prepare for a time when we may no longer earn an income.
Whether you’ve put off planning for retirement altogether or failed to create a truly comprehensive plan, you’re putting yourself at risk for a future of poverty, penny-pinching, and dependence. The stakes could hardly be higher.
When preparing for your final years, it’s not enough to simply hope for the best. You should treat retirement planning as if your life depended on it—because it does. To this end, even well-thought-out plans can contain fatal flaws you might not be aware of until it’s too late.
Have you committed any of the following three deadly sins of retirement planning?
1. Not having an actual plan
Even if you’ve been diligent about saving for retirement, without a detailed, goal-oriented plan, you’ll have no clear idea whether your savings strategies are working adequately or not. And such plans aren’t just about calculating a retirement savings number, funding your 401(k), and then setting things on auto-pilot.
Once you know how much you’ll need for retirement, you have to plan for exactly how you’ll accumulate that money and monitor your success. The plan should include clear-cut methods for increasing income, reducing spending, maximizing tax savings, and managing investments when and where needed.
What’s more, you should regularly review and update your asset allocation, investment performance, and savings goals to ensure you’re still on track to hit your target figure. With each new decade of your life (at least), you should adjust your savings strategies to match the specific needs of your new income level and age.
The plan should also take into consideration unforeseen contingencies, such as downturns in the economy, health emergencies, layoffs, and inflation.
Failing to plan, as they say, is planning to fail.
2. Not maximizing the use of tax-saving retirement accounts
One way or another, the money you put aside for retirement is going to be taxed. However, by investing in tax-saving retirement accounts, you can significantly reduce the amount of taxes you’ll pay.
Depending on your employment and financial situation, there are numerous different plans available. From traditional IRAs and 401(k)s to Roth IRAs and SEP Plans, you should consider using one or more of these investment vehicles to ensure you achieve the most tax savings possible.
What’s more, many employers will match your contributions to these accounts, which is basically free money. If your employer offers matching funds, you should not only use these accounts, but contribute the maximum amount allowed—and do so as early as possible.
3. Underestimating health care costs
One of the most frequent mistakes people make when planning for retirement is assuming that things will always stay the same. Whether it’s tax laws, inflation, market conditions, or marital status, if you don’t carefully consider how your circumstances might change with time, you’re putting yourself and your savings at serious risk.
While many such contingencies are mere possibilities, the one thing that’s certain to change with time is your body and mind. It’s an inescapable fact that our health naturally declines with age, so one of the riskiest things you can do is not plan for increased health care expenses.
With many employers eliminating retiree health care coverage, Medicare premiums rising, and the extremely volatile nature of health insurance law, planning for your future health care expenses is absolutely critical. And it’s even more important seeing that we’re now living longer than ever before.
Plus, these considerations are assuming that you don’t fall victim to a catastrophic illness or accident. The natural aging process is expensive enough to manage, but a serious health care emergency can wipe out even the most financially well off.
But with so many unknowns, how can you possibly prepare for every possible scenario?
The truth is, you can’t. That said, you should take advantage of every available precaution within your means. This might mean delaying retirement, purchasing supplemental insurance, investing in long-term care insurance, opening a Health Savings Account, or some combination of these options.
Start preparing for retirement now
The best way to maximize your retirement funding is to start planning (and saving) as soon as possible. In fact, your retirement savings can be exponentially increased simply by starting to plan at an early age.
This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by contacting our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
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