Since there are complicated aspects of retirement planning, many people choose
to work with professional financial planners in order to better ensure a
comfortable retirement. In addition to accumulating an appropriate-sized nest
egg, retirees also need to consider their debt, amount of insurance, inflation,
other sources of income and how to protect their investments.
FinancialPlanners.net offers five common mistakes that people make when
retirement planning that can greatly affect their golden years.
1. Retiring with too much
debt. Financial planners will generally recommend not retiring until
credit card, mortgage and other forms of debt are paid off. These monthly
payments can quickly cut into savings, which will be paying for past
expenditures -- plus interest and current expenses. Increasingly, Americans are
entering traditional retirement years with heavy debt.
2. Not
buying enough insurance. Although people over the age of 65 are
eligible for Medicare, they will still have additional healthcare costs that are
not covered. Depending on coverage, many items are not covered, such as
premiums, deductibles, coinsurance, eye glass coverage, hearing aids or
long-term nursing home care for longer than 100 days. Guidance from a
professional is recommended if the family has significant assets to
protect.
3. Not taking inflation into account. Inflation
will slowly decrease the spending power of savings. However, there are steps
that can be taken to avoid this. Social security, some annuities and pensions
are adjusted for inflation annually. Treasury Inflation-Protected Securities
(TIPS) are a government bond that promises a rate of return that exceeds
inflation.
4. Depending on one source of income. A
certified financial planner may recommend having four to six sources of
retirement income without counting on just one. By diversifying, retirees can
avoid losing all their income if one source loses value. Guaranteed sources can
include Social Security, pensions and annuity payments. Other common sources can
be 401(k), IRA, CDs, personal investments, cash investments, rental properties
and royalty income.
5. Not protecting savings. About
five to 10 years before retiring, people should start to focus more on
protecting their savings rather than growing them. People can reduce risk by
shifting assets to more conservative investments, avoiding borrowing or taking
early withdrawals and minimizing fees and taxes deducted from savings. More
funds should be placed in low-cost investments and traditional and Roth
retirement accounts.