My Comments: Few of us realize as we pass through young adulthood that life is finite. We may lose an elderly family member and we acknowledge the inevitable but few of us are able to get our arms around what it might mean for us.
I describe retirement as that point in your life when you turn off the ‘work for money’ switch and turn on the ‘money works for you’ switch. It may happen voluntarily or it may be forced on you. It may turn out to be a fun time or it may turn out to be a nightmare.
It depends on how willing you are to think beyond tomorrow and develop a strategy that works for you that is not annoying and causes you stress. Understanding the ultimate financial and emotional framework that is retirement will go a long way to help you make it work for you and your family.
Michael Eugenio, CFP® October 13, 2017
People fail retirement because they have failed to do many of the right things necessary to retire comfortably and with peace of mind. Back in the 70s and 80s, retirement was simple. At 65 you left your company with a guaranteed pension, Social Security and perhaps some savings. Times have changed. Most companies have terminated pension plans and Social Security has become a maze of confusion.
Why Do People Fail Retirement?
• Most folks have no idea how much money they need every month to maintain the lifestyle they have grown accustomed to. To add to the problem, they don’t consider future capital expenses such as a new car or appliance. And we often fail to acknowledge that we can’t do the things we used to do, such as maintain our homes. At some point, you may need to start paying professionals to take care of the maintenance.
• The second mistake is just assuming you should take Social Security as soon as you are eligible rather than having a professionally financial advisor do an analysis of your options and discuss how you can truly max out your benefit. Review and carefully consider your choices before leaving thousands of dollars on the table.
• Another error is not understanding Medicare, its weaknesses as well as how the government assesses Medicare premiums. Because Medicare pays so poorly, a Medicare insurance supplement is a must have. Meet with an insurance broker who is an expert in this area. He or she will research the entire market for the optimal plan and premium for your situation.
• The biggest blunder is going into retirement assuming you have plenty of money with no one to help you properly manage your portfolio. So many times, we see people with relatively small portfolios thinking they have plenty of money, only to find out they are drawing down on the funds at a faster rate than the portfolio can earn. This slippery slope is a recipe for disaster. You will run out of money before you run out of oxygen.
• Another glaring error is believing you can manage the portfolio yourself. After all, you saw the commercials of people who went from virtually nothing to millions in no time at all. You drank the Kool-Aid only to find out the information was not realistic or viable, just a way to separate you from your limited funds. That’s how they make their money, convincing you to buy their substandard material.
Even More Retirement Mistakes
Not considering long-term care insurance is still another mistake. After all, you know you will never be that bad off. My question is, how do you know? So many people have said to me, I will just refuse to go to one of those places, I’d rather jump off a bridge. That’s great, but you won’t make that decision, your family will make it for you. Remember to be nice to your children, because they will decide where you are going to live later in life. Yes, long-term care insurance can be a major monthly expense, but nothing compared to the cost of assisted living that averages $4,000 per month or memory care that can average $10,000 per month. Either one can devastate your finances.
Failure to understand inflation will eventually jump up and bite you where it will secure your attention. Our fine government will proudly tell us that inflation in 2017 is less than 2%. However, ask any retiree and they will demonstrably inform you that the government’s numbers are hogwash. Seems groceries go up about 7%, utilities go up about 4% and property taxes go up more than 2% every year. The cost of health insurance goes up typically between 10% and 20%. Out-of-pocket expenses you didn’t have when working, such as vision and dental coverage, are going sky high. If you ignore this basic fact of life, then you are certainly doomed.
The great thing about modern medicine is they keeping coming up with ways for us to live a long life. People turning 100 is more the norm now than an anomaly. Yet so many people go on the assumption that once you hit 80, your days are numbered and you really don’t need to worry about money. They reason if you retire at 65, you most likely will have only 10-15 years left to live. Big mistake!
Vision for Retirement Today
Probably the most obvious change today from years ago is people’s vision of retirement. In the past, you may have hoped you could take that one nice trip you always wanted. Now you plan to take several trips, spend more time on hobbies, maybe start a small part-time business. The challenge here is while the dreams are terrific, no thought is given how it all gets paid for.
The issue that has always flummoxed me is people go into retirement with thousands of dollars in consumer debt. It’s as if they think a fairy godmother will appear and with a sprinkle of glitter the debt just goes away. The reality is you have all this debt because you have been living above your means for years. What’s going to change now that you are retired? Do you have a plan to get that debt paid down before you retire?
All this and more is why you need to have a qualified financial advisor who can walk you through this maze and avoid the potholes and cliffs by creating a plan and making sure it gets executed and monitored. The retirement planning process should begin two to three years before you retire. Why go into retirement on a wing and a prayer?