How do you visualize your retirement years? Most people hope that they will finally be able to do the things that they never had time to do during their working years. Very frequently, folks anticipate retirement will be a worry-free time, full of enjoyment, and ample time to spend with family and friends.
As a financial adviser, I am often saddened to see retirees facing a different picture. I’m talking about people who are getting older but who can’t stop working because they don’t have enough savings to support themselves. The shortfall may come from a lack of savings, or may come from a lack of foresight in using their once ample funds. For instance, there are generous parents who give their children so much financial support that there is nothing left for them when they need it.
Very often, these are people who have worked hard and earned well. They have worked diligently to support their families, but unfortunately they have also made some disastrous mistakes. The three worst pre-retirement planning mistakes are:
1. Relying on government pensions. Even though you have paid your taxes faithfully over the years, the amount you receive back from the government should be considered a (small) supplement to your retirement income, not the only source. Social security was originally intended to provide financial support for only a few years, but with increased life expectancies, it’s becoming harder for Uncle Sam to continue making payments to all retirees. There’s much talk about pension size decreasing… so to be financially secure during retirement, it’s wise to make sure that you will have another source of income, such as a pension, IRA, 401(k), and other investments.
2. Thinking that you will never retire. You may really enjoy your work, and you are strong and healthy, so you are absolutely sure that you will always be working forever. Sadly, you don’t have a crystal ball and you don’t know what will happen. Counting on working until the day before your funeral isn’t a good financial plan.
3. Believing that you are too young to start thinking about retirement. You are never too young to think about retirement. In fact the younger you start, the better. Think of all the money you can save in a pension plan over 40 years as opposed to 20. The beauty of compound interest means that the earlier you begin saving, the harder your money can work for you.
To learn more about planning for old age, read why living too long may be a financial disaster.
Doug Goldstein, CFP®