Mistakes made when planning for your retirement can have disastrous consequences. Here are eight critical (but common) errors you should avoid…
1. Don’t retire away from a job; instead, retire to a well-designed retirement plan.
Spend time thinking about what you want to do in retirement. What will you do every day? Will you join a club or volunteer in your community? What are your hobbies? How do you like to spend your free time? If money were no object, how would you enhance your education, participate in cultural activities, enjoy sporting events, or possibly try out some new hobbies? Do you have a bucket list? Are there things on your list that you always wanted to do, but never had the time or money to try out?
Pick the top three priorities on your bucket list and start putting those items into motion now.
2. Don’t forget that part-time work can be a good way to phase into retirement… and it’s a good way to meet new people.
Think about your hobbies and interests; would it be possible to convert a hobby into a part-time business that generates some income? What are you passionate about? Would you like to embark on an encore career? Have you always dreamed of another career? Take time to explore all the opportunities waiting for you. (Possible suggested reading: Encore: Finding Work that Matters in the Second Half of Life, by Marc Freedman). Schedule a weekend retreat for yourself—a time specifically designed for retirement dreaming and scheming.
3. Don’t wait to visit the state where you plan on retiring.
Where are you planning to live in retirement? Will you stay in your current home? Will you move to another state? Will you downsize? Take trips now to your possible, ultimate retirement destination. Plan trips during different times of the year. Discover how the climate and population varies as the seasons change. Explore staying at a Vacation Rental by Owner (VRBO) so you can get to know the neighborhood. Walk around the community and talk with potential future neighbors. Explore the local restaurants, fitness clubs, community colleges, and cultural activities. Can you picture yourself living there? Spend as much time there as you can get away with.
4. Consider building your dream home now.
The time to undertake a major expense is while you’re still working. If you encounter cost overruns—and you always do—you can work a little longer. In other words, you could keep working until you pay off your dream home and then retire debt free. By building your dream home now, you can enjoy it longer and share the fun with your family and friends.
5. Think about doing your retirement traveling now.
Traveling can be expensive and often requires a lot of energy. If you’re planning an adventurous trip, you might want to do it while you’re still healthy and strong. Many trips require long flights, lots of walking and climbing, and you need lots of stamina and strength to conquer the traveling challenges that will undoubtedly come your way. If you’re not able to get time off from work to take those trips now or you don’t have the funds saved yet, then map out your travel destinations and start setting aside the funds required for those future excursions.
6. Don’t forget to rekindle old relationships and strengthen your current personal relationships.
While it might not be a financial consideration, it is a very important part of your mental health. It’s well documented that one of the keys to a successful retirement is being content in your personal relationships. Friends, family, co-workers, and neighbors all form an important support network. When you work every day, you don’t have the time to nurture old friendships and cultivate new ones, so they get put to the side. In retirement, you’ll have the opportunity to reach out to old friends from high school, college, and past careers or neighborhoods to reignite those friendships. You’ll have the enjoyment of talking about shared memories and creating new ones at the same time. The richness of your old and new friendships can help make the difference between an ‘okay’ retirement and a truly great one.
7. Don’t forget to put together your wealth planning team now.
Your team should include a wealth manager, a tax accountant, and an estate planning attorney. Formally open lines of communication and give each party your written consent to share information on your behalf. Work with your estate planning attorney to put together updated Powers of Attorney, Health Care Directives, and Wills/Trusts for your benefit. And don’t forget to update your beneficiary designations for your IRA accounts and life insurance policies.
8. Finally, work with your wealth manager to put together a thorough retirement plan.
Your retirement planning process starts with setting your retirement goals and developing a spending plan to accomplish those goals. The process continues with a rigorous quantitative financial plan that analyzes your cash flow projections for the next 20 to 30 years. The analysis incorporates inflation and taxes and includes a Monte Carlo analysis that helps to determine the likelihood that you can spend what you want to spend throughout your retirement. Your wealth manager will map out action steps to help you stay on track, meet your goals and avoid some costly retirement mistakes.
