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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.
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:
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.
| Year of birth | Minimum retirement age for full benefits |
|---|---|
| Year of birth1937 or before | Minimum retirement age for full benefits65 |
| Year of birth1938 | Minimum retirement age for full benefits65 + 2 months |
| Year of birth1939 | Minimum retirement age for full benefits65 + 4 months |
| Year of birth1940 | Minimum retirement age for full benefits65 + 6 months |
| Year of birth1941 | Minimum retirement age for full benefits65 + 8 months |
| Year of birth1942 | Minimum retirement age for full benefits65 + 10 months |
| Year of birth1943 to 1954 | Minimum retirement age for full benefits66 |
| Year of birth1955 | Minimum retirement age for full benefits66 + 2 months |
| Year of birth1956 | Minimum retirement age for full benefits66 + 4 months |
| Year of birth1957 | Minimum retirement age for full benefits66 + 6 months |
| Year of birth1958 | Minimum retirement age for full benefits66 + 8 months |
| Year of birth1959 | Minimum retirement age for full benefits66 + 10 months |
| Year of birth1960 or later | Minimum retirement age for full benefits67 |
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.
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.
| Year of birth | Full retirement age (FRA) | Months between age 62 and FRA | Retirement benefit is reduced by | A $1,000 benefit would be reduced by |
|---|---|---|---|---|
| Year of birth1943 - 1954 | Full retirement age (FRA)66 | Months between age 62 and FRA48 | Retirement benefit is reduced by25.00% | A $1,000 benefit would be reduced by$750 |
| Year of birth1955 | Full retirement age (FRA)66 and 2 months | Months between age 62 and FRA50 | Retirement benefit is reduced by25.83% | A $1,000 benefit would be reduced by$741 |
| Year of birth1956 | Full retirement age (FRA)66 and 4 months | Months between age 62 and FRA52 | Retirement benefit is reduced by26.67% | A $1,000 benefit would be reduced by$733 |
| Year of birth1957 | Full retirement age (FRA)66 and 6 months | Months between age 62 and FRA54 | Retirement benefit is reduced by27.50% | A $1,000 benefit would be reduced by$725 |
| Year of birth1958 | Full retirement age (FRA)66 and 8 months | Months between age 62 and FRA56 | Retirement benefit is reduced by28.33% | A $1,000 benefit would be reduced by$716 |
| Year of birth1959 | Full retirement age (FRA)66 and 10 months | Months between age 62 and FRA58 | Retirement benefit is reduced by29.17% | A $1,000 benefit would be reduced by$708 |
| Year of birth1960 and later | Full retirement age (FRA)67 | Months between age 62 and FRA60 | Retirement benefit is reduced by30.00% | A $1,000 benefit would be reduced by$700 |
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.
| Age | Full retirement age 66 | Full retirement age 67 |
|---|---|---|
| Age62 | Full retirement age 6625% reduction | Full retirement age 6730% reduction |
| Age63 | Full retirement age 6620% reduction | Full retirement age 6725% reduction |
| Age64 | Full retirement age 6613.3% reduction | Full retirement age 6720% reduction |
| Age65 | Full retirement age 666.7% reduction | Full retirement age 6713.3% reduction |
| Age66 | Full retirement age 66Full benefits | Full retirement age 676.7% reduction |
| Age67 | Full retirement age 66 | Full retirement age 67Full benefits |
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.
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.
| Year | Rate |
|---|---|
| Year2018 - 2020 | Rate37 |
| Year2013 - 2017 | Rate39.6 |
| Year2003 - 2012 | Rate35 |
| Year2002 | Rate38.6 |
| Year2001 | Rate39.1 |
| Year1993 - 2000 | Rate39.6 |
| Year1991 - 1992 | Rate31 |
| Year1988 - 1990 | Rate28 |
| Year1987 | Rate38.5 |
| Year1982 - 1986 | Rate50 |
| Year1981 | Rate69.125 |
| Year1971 - 1980 | Rate70 |
| Year1970 | Rate71.75 |
| Year1969 | Rate77 |
| Year1968 | Rate75.25 |
| Year1965 - 1967 | Rate70 |
| Year1964 | Rate77 |
| Year1954 - 1963 | Rate91 |
| Year1952 - 1953 | Rate92 |
| Year1951 | Rate91 |
| Year1950 | Rate84.36 |
| Year1948 - 1949 | Rate82.13 |
| Year1946 - 1947 | Rate86.45 |
| Year1944 - 1945 | Rate94 |
| Year1942 - 1943 | Rate88 |
| Year1941 | Rate81 |
| Year1940 | Rate81.1 |
| Year1936 -1939 | Rate79 |
| Year1932 - 1935 | Rate63 |
| Year1930 - 1931 | Rate25 |
| Year1929 | Rate24 |
| Year1925 - 1928 | Rate25 |
| Year1924 | Rate46 |
| Year1923 | Rate43.5 |
| Year1922 | Rate58 |
| Year1919 - 1921 | Rate73 |
| Year1918 | Rate77 |
| Year1917 | Rate67 |
| Year1916 | Rate15 |
| Year1913 - 1915 | Rate7 |
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.
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 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.
