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Are you making any (or all) of the 5 major retirement mistakes?

by Susan Wright | Contributor
August 17, 2020

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Planning for retirement is a goal that many people have – even very early in their careers. By consistently setting money aside for “the future,” you can build up a nice nest egg and use the money down the road to generate a stream of retirement income.

But just simply saving money isn’t enough. It is important to have a good, solid plan in place, and then use well thought out strategies for reaching your specific retirement goals. Unfortunately, though, there is a lot of misinformation being touted by financial “gurus” online, on television and in person today – and following some of this bad advice could lead you to make one, or possibly even all, of the five major retirement mistakes.

The 5 biggest mistakes you could make when planning your retirement

Even if you’ve been a good saver all of your life, it may not necessarily mean that you’ll have a successful retirement. Planning financially for the future can entail several key components. So, it is important to ensure that you don’t make any major mistakes.

Here are the top 5 retirement planning blunders that investors can make:

  1. Making your age dictate when you retire.
  2. Claiming your Social Security benefits at age 62.
  3. Not having a purpose in retirement.
  4. Forgetting to plan ahead for taxes.
  5. Taking a DIY (do-it-yourself) approach to your financial plan.

Making your age dictate when you retire

For decades, many people have been under the assumption that 65 is the “right” age to retire. This is likely due – at least in part – to Social Security’s “full retirement age” (FRA) being 65 for a number of years. But today, your Social Security FRA can be anywhere between age 65 and 67, depending on the year you were born.

Table showing Social Security full retirement age requirements

The reality is that retirement has far less to do with your birthdate, and more on the amount of passive income you can generate to “replace” your employer’s paycheck. In some cases, this can be accomplished long before someone turns 65 – especially if there is a definitive retirement income plan in place.

On the other hand, there are some people whose 65th birthday comes and goes, but they don’t have enough non-work related income to retire. Sadly, many of these people don’t realize this until they are already there.

Claiming your Social Security benefits at age 62

If you qualify for Social Security retirement benefits, these funds could account for a significant portion of your income in retirement. According to the Social Security Administration, these benefits represent approximately 33% of income (on average) for seniors.

But when you decide to file for Social Security could either increase or decrease the dollar amount of your income benefit. For instance, you can start claiming these benefits as early as age 62. But going this route can end up costing you. That’s because the amount of your check will be permanently reduced.

Table showing Social Security benefit reductions for early filers

The earlier you file for your Social Security benefits before you have reached your full retirement age, the more the dollar amount goes down. So, it is important to consider this reduction before moving forward.

Table showing costs of taking Social Security income before full retirement age

Not having a purpose in retirement

Not having a purpose in retirement is another big mistake. While relaxing on the beach or playing a round of golf each day might sound enticing, believe it or not, this can actually get old (and possibly even boring) after a while.

With that in mind, it is essential that you have a purpose in retirement. This can be any number of things, such as volunteering for a favorite charity, writing a book, traveling to all 50 states or even starting a new business that you’ve always dreamed of.

Forgetting to plan ahead for taxes

No matter how well your portfolio does during your working years, if you don’t plan ahead for taxes, you may not net enough spendable income to support your desired retirement lifestyle. Unfortunately, no one knows for sure what income tax rates will be in the future.

But, based on past experience, the top federal income tax rate in the U.S. over the past 107 years has been as low as just 7%, or as high as 94%. Because there is no way to predict what the rates will be when you retire, it is important to try and reduce – or even eliminate – your potential taxation in the future.

Top federal income tax rates 1913-2020

Taking a DIY (do-it-yourself) approach to your financial plan.

Unlike watching a YouTube video that walks you through how to install a new kitchen faucet, financial planning should not be considered a do-it-yourself project. There are many investment options available, but just because one (or more) of these financial tools is right for your cousin or your best friend, it doesn’t mean that they are right for you.

Retirement is a time period in your life where you could feasibly spend 20 or more years. So, it should ideally be strategized through an expert in the financial field who can balance out risk and reward and create a reliable, ongoing stream of income that you can count on for the rest of your life.

How to avoid big retirement planning mistakes

There are many items to consider when you’re planning ahead for retirement. Working with an income expert can allow you to better ensure that you’re using the best financial vehicles, based on your personal needs, goals, time frame and risk tolerance.

If you would like to set up a time to talk with a financial professional, feel free to reach out to Alliance America today. We can help you with narrowing down your short- and long-term financial goals, and then set up a strategy for helping you to reach them. We look forward to assisting you.

Alliance America can help

Alliance America is an insurance and financial services company. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.

Legacy

Your legacy is vastly more than an amount of money left to your surviving beneficiaries. Part your legacy can be the example of a life well-lived that’s achieved through proper planning.

Liabilities

Too many people enter retirement with burdensome mortgages, car payments and credit-card debt that they’ve amassed during their working years. Proper management of these liabilities is fundamental to your current and future financial viability.

Love

Financial planning often is motivated by our love for our life partners, children, family members and friends.

Taxes

Taxes have a significant impact your finances and can siphon assets unless you have a prudent approach to meet your objectives.