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Common Financial Mistakes Pre-Retirees Make

Common Financial Mistakes Pre-Retirees Make

May 11, 2021

Retirement can seem like a faraway dream. It can be easy to daydream about what you'll be able to do when you don't have to work: relax on a beach, immerse yourself into a hobby, or play more golf. The truth is that the future isn't so far-off. Because retirement can seem like a picturesque distant future, and the impacts of pre-retirement mistakes won't affect you until much later, it can be difficult to make the right choices. Unfortunately, many pre-retirees won't know that they have made any mistakes until it's too late. In this post, I want to share several common mistakes I see in my practice.

Not Having a Plan

While many invest into their employer's retirement plan, most lack a clear  goal. A plan allows you to understand how much you really need to retire, identify any shortfalls, and give you time to adjust your savings strategies. The advice of a trusted professional can help you consider things you would likely overlook when trying to do it alone, like making sure you're allocated correctly or creating a withdrawal strategy for your retirement income.

Without a plan, you're really just hoping that you've accumulated enough, and that can be like trying to shoot a target in the dark. While investing in your employer's retirement plan is important, you should  consider other ways to save. According to the 2021 Retirement Confidence Survey, workplace plans are a major source of income for only 20% of retirees.1 

Surprised? We're not. These numbers are consistent year after year. For most, retirement is the "next chapter" in life. It's critical that your finances support your retirement vision, so there are no surprises when it's your turn.

Waiting to Start Saving

A common mistake that pre-retirees make is beginning late. Even if you save a small amount when you're young, that investment will have time to compound. Compound interest can make a huge impact on your investment. it's better to start saving whatever you can, and avoid the cost of procrastination. Giving your investment the years it needs to collect interest will be worth it in the long- run. 

Not Adjusting Your Investment Approach

Investing is not something you can just "set and forget." Investments need to be monitored and diversified. Market volatility can undermine your retirement-income strategy. While it may come at the expense of some opportunity cost, there are products and strategies that may protect you from drawing down on savings when your portfolio's value is falling—a major cause of failed income approaches. The last thing your retirement portfolio can afford is a sharp fall in stock prices and a sustained bear market at the moment you’re ready to stop working. Consider adjusting your asset allocation in advance of tapping your savings so you’re not selling stocks when prices are depressed.

Overlooking Healthcare Costs

This topic is so important that we wrote a separate post about it. If you are like most people, healthcare is expected to be one of your largest expenses in retirement. If long-term care is necessary, your retirement savings can get drained quickly. In general, people are living longer, but unlike our parent's generation, most of us don't have a pension or employer-sponsored retiree health benefits. You probably don't have access to employer-sponsored pre-65 retiree medical coverage.  So if you retire prior to age 65, you'll need to find coverage until you are eligible for Medicare. One way to help with the costs of healthcare is to understand your Medicare coverage and supplemental plan options.

Auburn Hills MI Michigan Financial Advisor

It's great to dream about your retirement, but to also keep potential shortfalls in mind. Retirement should be fun and rejuvenating, a time where you can experience everything on your bucket list.  At WealthMap Advisors, we help our clients create a plan so that they can focus on their retirement dreams. Planning for retirement is about more than taxes and investments, it's about envisioning the life you have always wanted to live.

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1. Employee Benefit Research Institute, 2021 Retirement Confidence Survey

2. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss. Past performance does not guarantee future results.