There’s More To Retirement Planning Than Just Funding Your 401(k) or IRA. Discover The 12 Retirement Planning Mistakes You Must Avoid So Your Golden Years Aren’t Spent Flipping Burgers
- Reveals why you can’t rely on anyone else to fund your retirement, including the government.
- Explains the 3 major health care issues that can jeopardize your retirement planning.
- Shows you the exact value of learning basic investment principles today.
Retirement planning is one of the most important financial goals you’ll undertake – and the stakes couldn’t be higher.
Conversely, make one of these 12 mistakes and you could face a life of poverty, dependence, and penny pinching.
The key to success is to realize you have to get this right the first time because there’s no second chance once you hit retirement.
While you may think you’re on the right track by funding IRAs and/or a 401(k) retirement plan, experts caution you against false confidence.
According to Brooks Hamilton in an interview for PBS television’s Frontline, over 900 people in any given 1,000 person retirement plan will retire in poverty or run out of money before death.
That’s a shocking statistic.
It means over 90% of participants suffer financially in retirement. Clearly, there must be a better way.
Let’s look at the detailed reasons for this potentially high failure rate and what you can do to avoid becoming just another statistic.
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Retirement Planning Mistake 1: No Plan
According to the Retirement Confidence Survey from the Employee Benefits Research Institute, 48% of workers haven’t calculated how much money they need to save for retirement.
Similar studies show that when workers calculate their retirement savings needs and set a goal, they materially improve the actions taken to achieve that goal.
Stated simply, you can’t get to where you want to go if you don’t where you’re going. You must set the goal and then design a plan to achieve it.
Failing to plan is the same thing as planning to fail. The sad truth is most people spend more time planning their vacation than their financial future. You must be different.
“Make no little plans; they have no magic to stir men’s blood. Make big plans, aim high in hope and work.”– Daniel H. Burnham
If you haven’t already set specific, measurable financial objectives in writing and implemented a step-by-step plan to achieve them, then you’re setting yourself up for disappointment.
Fortune magazine published a study showing people with written plans end up with an average of five times the amount of money at retirement as those with no written plans.
Similarly, Harvard Business School published a study on goal setting and found:
- 83% don’t have clearly defined goals
- 14% have goals but they aren’t written down
- Only 3% have goals committed in writing
After a 30 year follow up, the conclusion was the 3% with written goals earned an astounding 10 times the amount of the 83% group. (Editors Note – some claim this study is an unverifiable urban myth. However, other studies show consistent results and my own work with coaching clients shows consistent results.)
Have you calculated your retirement planning goals, and have you committed to regular savings goals in writing? If not, then what’s stopping you?
Do you have a step-by-step action plan based on proven principles that will lead to financial success? If not now, then when? (If you’d like help with this see our wealth planning course here.) Time is working against you every day you wait.
It’s not enough to just calculate your retirement savings number, fund your 401(k), and put it away on a shelf to gather dust.
You must review your asset allocation, investment performance, and total savings on a regular basis and make changes as necessary so you leave nothing to chance.
In summary, there are two groups of people: those who set goals in writing and build plans to achieve them, and those who envy and admire the results achieved by the first group.
The number one retirement planning mistake most people make is not setting financial goals and committing to a plan in writing to achieve them.
Financial coaching can help you design your retirement plan and provide the accountability and experience necessary to support you in completing its implementation.
Best of all, we can do it without any of the conflicts of interest created by selling investment products.
Retirement Planning Mistake 2: Don’t Save Enough
Here’s a shocking set of statistics for you…
- According to the Federal Reserve, the median balance of retirement savings for Americans is $60,000.
- The median retirement savings balance for those aged 35-44 is $42,700.
- The median retirement savings balance in the 55-64 age category (people near retirement) is $103,000.
Nobody wants to be told to save more. The Puritanical value of savings is so often repeated that it verges on boredom.
Here’s the reality: you’re either saving for retirement today, or you’re consuming your retirement today.
It’s a choice you’re making that has profound implications on the last 30 years of your life.
Saving for retirement is about priorities and alternatives. Do you take that five-star vacation now, or go camping and buy a few years of comfort in retirement with the difference?
Do you upgrade your car to a new model now, or do you stretch its life with a few repairs so you can enjoy new vehicles in retirement?
A few inconsequential inconveniences today can compound over time into a comfortable retirement tomorrow.
For example, what’s the real price of that fancy coffee drink you buy each day? $5.00 per day times 20 days per month for 50 years at 10% interest compounds to an astonishing $1,876,000.00 that could be saved for retirement.
An espresso machine and a few minutes per morning filling a thermos bottle is a small price to pay for that additional security in your retirement.
And that’s just coffee – imagine all the other places where your current consumption could be redirected to savings. It’s a lot easier than you might think.
Most people find the savings habit addictive once they establish the pattern and see the results. It’s not a matter of sacrificing as much as it’s about redirecting priorities.
“If you would be wealthy, think of saving as well as getting.”-Benjamin Franklin
The reality is retirement planning isn’t a decision of whether or not to consume, but when to consume. Consuming now means your money won’t compound and grow to support you later.
The “no-brainer,” get-started-today solution is to invest as much money in your company retirement plan and IRAs as you can afford.
At a minimum, you should invest enough in the 401(k) to get the company match, assuming it’s offered. Nobody should pass on that opportunity. Yet for many people, even that won’t be enough.
Chances are you’ve already heard the “save 10%” rule of thumb. It’s actually a workable formula if you start in your 20s and retire in your 60s without significant inflation or debt problems along the way.
But retirement dreams vary, and if your vision is to retire at 50 with waterfront property, then saving just 10% isn’t likely to cut it – particularly if you wait to start saving until age 40 or later.
In a PBS interview, Jack Vanderhei of the Employee Benefit Research Institute said you need to save 13.3% of your total income if you’re a male who works for 30 years, retires at 65, and only relies on Social Security and his retirement plan.
A female needs to save 14.1% – employer and employee contribution combined – because of longer life expectancy. If you want to retire 5 years earlier at age 60, then contribution rates rise to 14.5% and 15.3% respectively.
Vanderhei isn’t a lone wolf in these seemingly aggressive calculations. Brooks Hamilton calculates retirement savings contribution rates between 15% and 18% of earned income depending on assumptions. This is greatly in excess of average savings rates for most employees.
And if that weren’t enough to shock you, Jack Bogle of Vanguard Mutual Funds fame points out people who don’t start saving until age 40 should contribute 25% of their income to retirement savings because they need to make up for lost time.
Clearly, the lesson here is to start saving for retirement early and aggressively. Every day you delay raises the percentage of income you must save and increases the leverage and risk required to achieve the same financial goal.
There’s an easy way and a hard way to save for retirement, and the easy way is to start early and save aggressively. The hard way is to procrastinate on the easy way.
Ask yourself, “What percent of my income is being saved, and is it enough?”
Retirement Planning Mistake 3: Don’t Start Saving Early Enough
There’s only one guarantee in retirement planning: doing nothing won’t provide financial security.
Many people mistakenly believe they’ll have plenty of time for retirement planning once they buy a home, put children through college, and so on. That’s a mistake because when you’re 20 years old, you think retirement is 40 years off, so you wait until you’re 30.
When you reach 30, you have a mortgage and kids and spend money like crazy, so you wait until 40. When you’re 40, the kids are in college, or your parents need help, so you wait until 50.
Once you reach 50, too much time has been lost and your retirement savings is forever handicapped.
The most valuable asset you have when saving for retirement is time. The more time you have until retirement, the easier the task is to accomplish. The longer you delay getting started, the harder it will be, and the greater the risk to your future lifestyle.
Procrastinating about retirement planning is wealth suicide on the installment plan.
The reality is there will never be a “right” or convenient time to start building toward a secure retirement. It will never be easier than today. It will only get harder because there’s less time.
For example, did you know that every 6 years you wait to get started roughly doubles the required monthly savings necessary to reach the same level of retirement income?
That’s an astonishing statistic! It’s life changing.
Would you rather start saving today at half the rate, or wait a few years so that you have to pay twice as much to produce the same result?
Similarly, did you know you could contribute $2,000 each year for the next nine years, then add nothing more to a retirement account and just let it compound for 41 years, or you could wait those nine years to get started and have to contribute $2,000 for 41 consecutive years to get roughly the same result?
Which would you prefer to do – 9 years of saving, or 41 years to get the same result? More importantly, which one are you actually doing right now? (Try our free retirement calculators here to play with the numbers yourself.)
It’s not money that builds wealth – it’s money multiplied by time. Waiting to get started effectively removes time from the equation, and that’s a really bad idea.
It eliminates your ability to compound your way to wealth and forces you to rely on your ability to save instead.
In short, procrastination is a very painful and expensive mistake when it comes to retirement planning.
If you would like help getting started, our coaching programs can get you on the right path so that you stay the course long enough to reach your goals.
For most people, a secure retirement will result from doing lots of little things right over a long period of time. Get started now. You can do it, we can help.
Retirement Planning Mistake 4: Relying On Social Security Or A Company Pension Plan
Another common illusion is believing someone else will take care of retirement planning for you.
You’ve been lead to believe you don’t have to be responsible because you’re part of a company pension plan and have government guaranteed Social Security. “They” have it covered for you, right?
Well, sort of…
This myth is completely dispelled in our related article Pension News: You’re On Your Own For Retirement. For the complete story, make sure to read this article because it’s important.
“The rate of return on Social Security for people nearing retirement is about 1.5%. By the time young children like mine are ready to retire, that rate of return will be a negative percentage.”– Paul Ryan
As a brief summary, what the article points out is the paternalistic days of employers and government providing a guaranteed income for life are coming to an end.
Depending on your age, number of years to retirement, and the company you work for, you may want to get serious about taking retirement planning into your own hands. Otherwise, you risk being in for an ugly surprise.
Many traditional defined benefit plans are grossly under-funded, and more are being converted to defined contribution plans. Health benefits are being eliminated, and Social Security is actuarially unsound.
We’re not fear mongers here at Financial Mentor, but the trends are clear and the picture isn’t pretty. How dramatically these changes will affect you is dependent upon your specific circumstances.
The new reality of retirement planning means your role and responsibility has shifted from passive to active. You either get in the driver’s seat to secure your retirement income needs, or face an insecure retirement as a consequence. The choice is yours.
Retirement Planning Mistake 5: Not Maximizing Tax Deferral
Uncle Sam has played an important role in shifting the burden of responsibility for retirement planning onto your shoulders, and in a rare moment of generosity and wisdom, he created a variety of tax incentives to encourage individual retirement savings. Not utilizing tax incentives to maximum advantage is a mistake.
“Unquestionably, there is progress. The average American now pays out twice as much in taxes as he formerly got in wages.”– H.L. Mencken
For example, contributions to a 401(k), 403(b), and other employer sponsored retirement plans both reduce taxable income and allow your money to grow tax-deferred.
If that weren’t enough to motivate you, many employers offer a savings matching plan which is tantamount to free money. Amazingly, many employees walk right past those tax savings and free money by never contributing to their plans. That’s a big mistake. Use it or lose it.
For example, let’s assume you’re in the 30% tax bracket (state and federal combined) and your company matches 50 cents for every dollar contributed to your plan up to 6% of salary (this formula is widespread).
If you contributed $5,000 within that 6% limitation, the tax savings would approximate $1,500 and the match would equal $2,500 of free money, creating $4,000 of added benefits from your $5,000 contribution – plus you still have the original $5,000 you put in.
In essence, it hardly cost you anything to build your savings, you got an immediate 50% risk free return on your investment, and all of the money will grow tax-deferred in your account, creating even more savings long term.
“The avoidance of taxes is the only intellectual pursuit that carries any reward.”– John Maynard Keynes
Clearly, this is a no-brainer, low-pain savings strategy that everyone should be maximizing – yet many don’t. According to Census Bureau data, an estimated 58.2% of all workers don’t own a retirement savings account of any kind. That’s a mistake.
Even if you aren’t covered by a 401(k) or 403(b), there’s an alphabet soup of retirement plans awaiting your funding that will give you some mix of tax-deferred growth and current tax savings.
This includes SIMPLEs, IRAs, Roth IRAs, SEPs and many more. Because this area of the law changes rapidly, you’ll need to talk to your accountant or financial advisor about your personal situation and which retirement plans may be right for you.
Anyone not taking full advantage of the savings incentives built into the tax system is throwing away a huge opportunity, and once the opportunity is gone, you can never retrieve it.
Use it now, or lose it forever.
It’s a mistake for most people not to max out their government sponsored retirement plans every year they work.
Are you taking maximum advantage of these programs?
Retirement Planning Mistake 6: Spend Instead of Rollover
In a PBS Frontline interview, Jack Vanderhei also stated that 70% of workers who switch jobs in their 20s cash out their 401(k) instead of roll it over.
55% of workers in their 30s make the same mistake.
Similarly, a study by Hewitt Associates showed that overall, regardless of age, 45% of workers cash out rather than rollover their retirement plans when switching jobs.
That means they take the money, pay the taxes, and even pay a 10% penalty if they’re under 59 ½ years old. That’s a big mistake.
The younger you are and the smaller the balance you’re rolling over when switching jobs, the higher the probability you’ll violate this simple retirement planning rule: once money is saved in a tax-deferred account, never take it out until after you retire.
Remember, seemingly inconsequential dollar amounts when compounded over many years can grow into significant retirement savings. (Prove it to yourself with our free compound interest calculator.) If you pull the money out when switching jobs, it destroys the compounding process.
A better alternative is to roll it over into an IRA. Sometimes you can leave the money in your old plan or transfer it to the retirement plan offered at your new job, but the rollover IRA has some advantages these other choices don’t.
First off, you’re taking responsibility for the money which is important in the long term, but you’ll also increase your investment flexibility with an IRA and lower the costs associated with managing it.
A similar mistake is to take advantage of “hardship provisions” by borrowing money from your 401(k). According to a study by J.P. Morgan Asset Management, one-fifth of plan participants borrow on average 15% of their retirement plan balance.
When you borrow money from your retirement plan, you lose valuable interest and destroy the all-important compound return effects. Don’t do it.
The rule is simple: once money is placed in a retirement plan don’t take it back out until after you retire.
Spending it before you retire is an expensive mistake that few can afford to make.
Retirement Planning Mistake 7: Underestimating Health Care Costs
Employers are increasingly eliminating retiree health coverage and Medicare is increasingly requiring premiums and co-payments while failing to cover certain medical services you may want.
For these reasons, smart retirement planning necessitates additional health care planning. You can no longer assume it’s automatically covered by your employer or government.
There are three major issues to consider regarding health care costs in retirement:
- Early Retiree Self-Insurance: If you retire before qualifying for Medicare, make sure you know the cost of self-insurance and can afford to pay it. Be prepared for sticker shock.
- Medicare Out-of-Pocket and Supplemental Premiums: Once you qualify for Medicare, there are still supplemental insurance premiums to consider and out-of-pocket expenses that must be covered. Make sure you’ve built these expenses into your budget and know what to expect.
- Inflation and the Unknown: How do you make reasonable estimates for medical costs knowing the bulk of those expenses won’t be incurred until later in life? With medical costs and insurance rising at double digit rates, and Medicare’s trust fund projected to be depleted by 2030 (or thereabouts depending on the assumptions), planning for medical costs over a 30+ year retirement is a moving target at best.
A Fidelity Investments study estimates the average couple will need nearly $245,000 over the course of their retirement just to pay for out-of-pocket medical costs.
“Happiness is nothing more than good health and a bad memory.”– Albert Schweitzer
If that number doesn’t concern you, then consider long-term care issues. Christopher Raham, an actuarial adviser for Ernst and Young, estimates a couple has a 50% chance of at least one partner needing long-term care at an estimated $150,000 average cost.
Yes, you can buy long-term care insurance in your 50s or 60s to help cover this one specific risk, but you can’t insure inflation risks or the risk of unknowable health problems in the future. Health care costs are an unwieldy monster with no real solution.
The best you can do is price out the various forms of insurance including Medicare supplemental insurance and long-term care insurance, and apply your best estimates for the remaining medical costs you must shoulder.
Yes, it’s only a guesstimate at best, and it will add to the size of the nest egg required, but your health and retirement security depend on it.
Budgeting for anything less is a risky mistake.
Retirement Planning Mistake 8: Spending Too Much – Or Too Little
According to a study by J.P. Morgan Asset Management, the average retirement plan sees withdrawal rates exceeding 20% per year during the early phase of retirement.
This will deplete savings way too fast and is a critical mistake. There isn’t a financial planner alive that would tell you that 20% is an actuarially sound spending rate, but the sad reality is most new retirees aren’t very good actuaries.
According to Fidelity Investments, the odds of one spouse living past the age of 90 are roughly 50/50, meaning you must plan for 30+ years of retirement. Your health and genetic makeup may lengthen or shorten that time-frame. Increasingly long life expectancy reduces the percent of savings you can spend each year because your savings must last longer.
“We have some control over when we retire. However, we have very little control over how long we live.”– Gordon Smith
Experts generally agree that your withdrawal rate from savings should approximate 4% per year (give or take a percent depending on assumptions), but even that rule of thumb is subject to some controversy.
Another school of thought lead by Wisconsin financial planner Ty Bernicke claims that retirees spend less as they get older, largely offsetting inflation expectations and increasing the rate of withdrawal from savings that’s actuarially sound.
His position is the 4% rule of thumb unnecessarily impoverishes retirees and he has solid numbers and logic to support this claim.
Unfortunately, all these arguments are incomplete guesstimates at best. They’re nothing more than helpful guidelines based on a myriad of assumptions hiding behind a veil of semi-science.
Nobody can know the future with any confidence. Many of the assumptions used to estimate safe withdrawal rates will likely be invalidated during the 30+ years you live in retirement. You’ll never know if you’re the unlucky one who has health problems and ends up in long-term care only to live far longer than expected.
You have no idea if inflation will increase beyond current expectations, thus eroding your purchasing power, or if a miracle life extension drug will emerge, forcing you to stretch your savings.
The future is unknowable.
In the end, an estimate is just that – only an estimate. Every estimate is based on assumptions, and 30 years of retirement in a rapidly changing world will almost certainly invalidate a lot of those assumptions.
I encourage clients to plan their retirement savings withdrawals to last in perpetuity. The reason is simple: nobody ever lay on their death bed regretting leftover savings, but you would certainly regret the death of your savings before the death of your body.
Retirement Planning Mistake 9: Believing You’ll Want To Work Forever – Or Not At All
A recent Center for a Secure Retirement survey shows that 49% of respondents plan to work beyond 70, or as long as their health will allow. However, the study goes onto say 69% of baby boomers surveyed retired earlier than expected. What’s the cause and how should it affect your retirement planning?
It’s easy to imagine wanting to stay involved with work and be productive when you’re in your 40s and 50s with vibrant health and strong energy.
Yet, for many, the enthusiasm for work wanes with age as disability, infirmity, and chronic health conditions emerge.
Health has a way of deteriorating with time, taking your energy level with it. What sounded good in your 40s and 50s may not sound good in your 60s, 70s, or even 80s.
“It is impossible to enjoy idling thoroughly unless one has plenty of work to do.”– Jerome K. Jerome
The flip side, however, is that 20 or 30 years of perpetual leisure is not necessarily everyone’s idea of retirement bliss either.
Some people are happy continuing to work part time or take on second careers so they can feel productive, stay involved, and remain connected. For those people, work might make sense – but only for as long as they desire it.
The rule is to keep your options open and don’t paint yourself into a corner by betting your retirement plan on the income derived from post-retirement work.
Treat earned income during retirement as a nice bonus that adds to lifestyle should you earn it, but plan your savings and income needs so you’ll be financially secure should your attitude change toward work.
Your objective should be to work during retirement because it’s fulfilling and enjoyable – not because you have to.
It’s a mistake to plan your retirement security so that it’s dependent on earned income.
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Retirement Planning Mistake 10: Investing Too Aggressively – Or Not Aggressively Enough
Nothing can damage a retirement plan like bad investment decisions.
Ignoring proper asset allocation by concentrating investments in your company stock, or trying to make up for insufficient savings by taking unjustified risks are all ways to grow a small retirement savings down to zero.
In the first example, placing too much of your retirement savings in your company stock is too risky because the company is both your employer and the source of your retirement income. If something went wrong, you’d lose both your job and your retirement savings.
If you don’t think that’s possible, then just ask former Enron employees who lost everything. If you think that’s an isolated example, look at airline employees or Countrywide employees during the credit problems in the fall of 2007.
On the opposite end of the spectrum is fearing losses to the point of excessive conservatism and investing exclusively in CD’s, money market funds, and guaranteed annuities.
The problem with this strategy is you’re virtually guaranteed to lose purchasing power over time on these “super safe” investments due to low returns that can end up being negative returns after factoring in taxes and inflation.
“Take calculated risks. That is quite different from being rash.”– George S. Patton
As is true with so many issues in life, retirement investing is a question of balance. You must balance your fear and greed by balancing your risk with reward. It’s a mistake to not take any risks because most retirees have a remarkably long investment time horizon – more than 30 years for some.
Pre-retirees who are still saving have even longer time horizons. That means plenty of time to justify taking intelligent risks rather than hiding out in “guaranteed income” investments.
The old rule-of-age based asset allocation is rapidly becoming outmoded. It doesn’t make sense to carry a 50% stock – 50% bond portfolio at age 50 like it used to because increasing longevity says you may still have 40+ years remaining.
Investing aggressively isn’t just for your early wealth building years because interest bearing investments can easily become “certificates of guaranteed confiscation” when eroded by 30 years or more of inflation.
Like it or not, investing requires an offensive strategy – even for retirees. Playing pure defense with no or low risk strategies nearly guarantees loss of purchasing power. You must do better.
You must earn a real rate of return net of inflation and taxes so you improve your purchasing power over time, or at least preserve it net of withdrawals. This requires you to take risks, but only smart risks, because not taking any risk may be biggest risk of all.
Retirement Planning Mistake 11: Investing In Variable Annuities
Variable annuities are insurance contracts where you invest the premium in mutual fund-like investments. They’re rarely an appropriate investment for a retiree or someone planning for retirement.
For the complete analysis of variable annuities and who they are appropriate for, please read the article on this site explaining the pros and cons of variable annuities. Below is a quick summary of the problems inherent in variable annuities.
The first problem is the costs, fees, surrender charges, and other various expenses that can overwhelm the benefits offered by the product.
Variable annuities can easily cost 50%-100% more than comparable mutual funds, and worst of all, these costs pay for benefits that are frequently of dubious value once you examine the fine print.
Always remember when examining costs that a percent here or there may not sound like much, but it really adds up over time and can significantly eat into investment returns.
“Experience is the name everyone gives to their mistakes.”– Oscar Wilde
To solve the cost/benefit problem, there has been a spate of low-cost, stripped down variable annuities released, but changing cost structure still doesn’t solve the tax related problems inherent with variable annuities.
While they grow tax-deferred (which is a good thing), the gains are taxed as ordinary income when you withdraw the money (which is a bad thing because stocks, bonds, and mutual funds can qualify for lower capital gains treatment).
Additionally, when you die, your heirs will forgo the “step up in basis” on variable annuities that reduces their tax burden had your money been in more common investments like stocks and mutual funds. With variable annuities, your heirs can expect to pay ordinary income tax rates on all money withdrawn. Ouch!
In the end, variable annuities are seldom bought by retirees – they’re sold. Don’t be the next victim of the self-deluded variable annuity salesman in search of his commission.
Read the complete analysis in the Smart Investor’s Guide to Variable Annuities ebook so you can make an educated, independent decision about what’s right for your circumstances.
Retirement Planning Mistake 12: Paying Too High Investment Expenses
The cost of investing is greater than most people understand.
When investing in mutual funds, most people see only the management fee which averages close to 1.5% for equity funds.
What they don’t see are portfolio turnover costs, hidden sales charges like 12b-1 fees, and other hidden charges because the portfolio is under-invested, etc. The costs you don’t see can easily double the costs you do see, making the 1.5% closer to 3%.
These costs are one of the prime reasons why most actively managed mutual funds consistently under-perform their passive index cousins. Costs are like a tax that must be overcome before any money flows into your pocket.
If you think this problem is isolated to mutual funds, then read on because the same logic applies equally to other investments. For example, you may notice the commission paid when buying and selling stocks or bonds, but you don’t see the bid/ask spread and dealer markup which can easily cost more than the commission. Again, these are hidden costs.
Only pay for value added services. Beware of hidden costs associated with certain investments.
The rule is simple: only pay for value added services. If you hire a broker or manager who charges 1% per year then s/he must add more than 1% per year to your portfolio compared to passive index investing to justify the fees.
The same is true with mutual fund managers and any other service or fee you incur. Only pay for services that put more money in your pocket than they take out.
If you think I’m being picky here and fretting over meaningless details, don’t kid yourself. A percent or two over the course of a typical retiree’s lifetime is big bucks by anyone’s standard.
Most retirement savings’ time-frames range between 30 and 60 years. A 1.5% difference in return due to expenses can double the value of your account because of the compound effect over that long period of time.
We’re talking the difference between $500,000 in savings versus $1,000,000 – and that’s a big deal – all because of a paltry 1% to 2%.
The point is to focus on return, watch the bottom line, and only pay for investment services that clearly add value beyond what they cost. Your broker may be a nice guy, but that’s irrelevant.
Your job is to secure your retirement – not his.
Either your portfolio outperforms passive indexes net of taxes and fees or it doesn’t. Results never lie, and your retirement security is at stake.
In summary, many people make the mistake of not taking retirement planning seriously enough.
They fail to start saving early, don’t save enough, or lack the financial literacy to make wise investment choices.
“You must learn from the mistakes of others. You can’t possibly live long enough to make them all yourself.”– Sam Levenson
Every person saving for retirement or living in retirement must develop a certain level of financial skill so they can make wise decisions with their assets.
You must manage your savings withdrawals as an actuary, invest the savings to grow and produce the necessary income, and spend those savings to produce the greatest value and enjoyment.
You must learn how participate in savings plans, save the correct amount, and invest it wisely. Each of these skills requires financial literacy.
The sad truth is the data clearly show most people are ill prepared for these responsibilities. They lack financial literacy, causing them to perform poorly as actuaries, asset allocators, investment strategists, and long-term planners.
“More people would learn from their mistakes if they weren’t so busy denying that they made them.”– Unknown
That’s why Financial Mentor was formed – to offer financial and investment education that isn’t biased by commissions and hidden financial incentives. Our only objective is to provide you the most complete, actionable, and unbiased financial information available.
This education isn’t optional because your retirement security is at stake. You’re betting a lifetime of work and savings with every decision you make, so you must be able to navigate these waters effectively and with confidence.
Any other alternative is simply too expensive.
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