3 Planning Mistakes That Could Sink Your Retirement

Every year, Gallup conducts a survey to gauge Americans’ most pressing financial concerns. For the 16th year in a row, Americans have said that “not having enough money for retirement” is their biggest concern. In the 2016 study, 64 percent of Americans expressed concern about retirement.1
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It’s an understandable concern. Now more than ever, the burden is on the retiree to accumulate enough assets to support a multi-decade retirement. While some retirees may have a pension available, many will rely on some combination of Social Security and distributions from their personal savings. Given the scope of the challenge, it’s easy to see why many workers are concerned.

The good news is that many of the concerns and risks associated with retirement can be resolved through effective planning. In fact, simply avoiding the biggest and most common mistakes could put you in a stronger position for retirement.

Below are three mistakes that retirees often make in the planning process. As you develop your retirement plan, think about whether you’re guilty of these errors. If so, you may want to rethink your plan and your assumptions.

Using a general rule of thumb to estimate retirement expenses.

Many retirees subscribe to the idea that one’s retirement expenses can be estimated by taking a fraction of current income. For example, you may assume that you’ll need only 90 percent or 80 percent of the income you earn today.
That may not be accurate, though. After you retire, you’ll have a considerable amount of free time. You may be tempted to fill that time with travel, shopping, dining out or other costly activities. You might have an expensive hobby that you want to pursue, or you may want to make a large purchase, such as a vacation home.

Think about your vision for retirement and the kind of lifestyle you want to have. Then develop a budget around that vision. You could find that the “rule of thumb” estimate is far less than you actually need. A budget can help you accurately examine your expenses and make the necessary adjustments.

Assuming Medicare will cover all health care costs.

Nearly all retirees depend on Medicare to cover health care expenses. While Medicare is a valuable resource, it doesn’t cover everything. In fact, Fidelity estimates that the average 65-year-old couple will spend $245,000 on out-of-pocket health care costs in retirement.2

Medicare doesn’t cover things like vision, dental or hearing. It usually doesn’t cover treatment received in other countries. Medicare often only partially covers rehabilitative services and may not cover long-term care at all. You’ll also likely face premiums, deductibles, copays and more.

Take time to plan for out-of-pocket health care costs. By planning ahead, you can take action now, such as funding your health savings account (HSA) or buying long-term care insurance. However, if you don’t plan ahead, you may find you don’t have many options later.

Being too risk-averse.

Part of your planning process will likely include a review of your retirement investment strategy. It’s natural to have a low risk tolerance as you approach and enter retirement. After all, downside volatility could threaten your ability to generate retirement income.

However, you may want to resist the temptation to avoid all risk. Growth and risk often go hand in hand. If you move toward vehicles that carry no risk, you may also limit your ability to increase your assets, and you will need growth to fund a long retirement and to combat inflation.

If you do have a low tolerance for risk, you may be able to utilize tools that limit downside exposure but also offer growth potential. For example, fixed indexed annuities can help you avoid market losses while still giving you the chance to capture upside gains.

At Carstens Financial Group, we can help you avoid these planning mistakes and develop a strategy that is appropriate for your goals and needs. Contact us today to start the conversation. We look forward to helping you enjoy a secure and comfortable retirement.

1http://www.gallup.com/poll/191174/americans-financial-worries-edge-2016.aspx
2https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-retirement-rise

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