People like to avoid talking about retirement. It’s a moment for many to become a real-life ostrich and bury their heads firmly in the sand. Why? They think retirement planning is a conversation that focuses on the end of your life, so they ignore it. However, it’s about how to best enjoy your life. To do that, there are certain issues – or retirement pitfalls – you need to tackle so your plans aren’t derailed.
Pitfall #1: I don’t want to talk about it
The first hurdle to get over is talking with your partner about retirement. A lot of people don’t know where to start. Many get hung up on picking an age to retire. Instead, ask yourself what does retirement look like for me? Working less? Never stepping foot in an office again? Maybe it’s getting your dream job or charity work where salary is secondary. You can start planning once the end of the plan starts to come together.
Pitfall #2: Money comes in, money goes out
It’s common for people to spend a lot of time worrying about how much they make, or working hard to get that promotion, raise or bonus. Those are noble financial objectives, but if you don’t put into context your expenses versus your income, it’s hard to know each year where you stand financially. You can avoid a huge retirement pitfall if you establish how much you want/need to save every year after really getting an understanding of money coming in versus money leaving.
Pitfall #3: You work hard for the money
But is your money working as hard for you? You should either have your own investment philosophy or know your financial advisor’s investment philosophy. If you don’t, you may be missing a vital element to the long-term success of achieving your retirement goals. It’s important to earn the best and most responsible rate of return for your investments. For example – if you have a million-dollar portfolio, what’s the difference between earning 6% versus 8% over 20 years?
Earning just 2% more over 25 years means more than $200,000, so be sure to pay attention to what you’re earning.
Pitfall #4: Plan, execute, ignore
Not reviewing your plan on an annual basis is a major pitfall. The retirement planning process highlighted here can change over time – your dreams, income and expenses, ability to save, etc. That’s why you want to revisit these objectives every year to make sure you’re on track. You also want to make sure your portfolio is growing and accumulating.
Age is just a number
If you’re looking for the right age to retire when you should be having these conversations, you’re going to miss out. Retirement planning is as unique as your fingerprint, which means it’s impossible to answer blanket statements of when to start this process. What we do suggest – planning and saving early is better than later and will help you avoid retirement pitfalls.
Michael Carlin, AIF®