Avoid These 5 Common Mistakes When Planning For Retirement!

4 June 2024

We all make mistakes – that’s part of the awful and wonderful journey of being human – and retirement planning is one area where we can stumble.

Below are the 5 most common mistakes we see when it comes to retirement planning.

Asset Allocation

When was the last time you sat down with your virtual CFO or trusted financial advisor to thoroughly review your asset allocation?

If your advisor is conscientious and proactive, s/he will reach out to you to suggest asset allocation adjustments when circumstances indicate it’s advisable – such as in times of market fluctuations, for example.

But when you are looking retirement in the face, it’s time to take a hard look at your changing financial situation and needs, and your ultimate goals for the assets you’ve worked so hard to build up.

You may have been a savvy risk-taker, with a long-term vision and a high risk tolerance while you built up your assets.

However, retirement can change that. Absent a regular paycheck, what income do you need to finance the lifestyle you want?

You may want a continuation of the lifestyle you have now, or a simpler and/or scaled-back version. Or you may want to take up new, possibly costly goals (such as the international travel you’ve put off and are now looking forward to).

The important thing is to understand what you envision your post-retirement lifestyle as, what your income needs are going to be, and where that income will come from. You may need more income, or less – either way, you will need to structure your portfolio accordingly.

And don’t forget that, while you want your assets to generate income for you, you should balance that with continued asset growth, as well.

All your goals, those that have changed and those which remain the same, need to be taken into account, and your asset allocation adjusted according to your individual needs, to ensure you can achieve those goals, for yourself and for your posterity as well.

Your Estate Plan

We’ve said it before – estate planning isn’t a matter of “set it and forget it.” It’s a fluid process, and an effective estate plan takes into account everything you want your wealth to do – for yourself and your family, now and in the future.

Remember that if Congress doesn’t take action before the end of 2025, the estate and gift exemption will revert to its 2017 level of $5 million per individual, as adjusted for inflation (estimated at $7.5 million per individual and $14.5 million for married couples) as of January 1, 2026. For 2024, the exemption is $13.61 million per individual, and $27.22 million for married couples.

It’s never wise to underestimate Congress’ ability to raise taxes. Take advantage of the higher estate exemption while it’s are available to you – you and your estate won’t be penalized for acting under current law after the law changes, if it does.

Healthcare Costs

It’s a fact that our healthcare costs increase as we age. And, once you retire, any employer-based health insurance is time-limited (so far as its cost is concerned) to COBRA coverage limits, or 18 to 36 months. Some plans may offer extension of coverage at your own expense for longer, but be sure you know your options!

You can be enrolled in Medicare and retain your employer-sponsored or COBRA coverage. However, not enrolling in Medicare within your initial eligibility window can result in penalties for late enrollment in Plan B, so start your Medicare enrollment before your turn 65 (we recommend 3 to 6 months before your birthday).

A healthy 65-year-old may not quite comprehend that life at age 80 will likely require an entirely different approach to healthcare than what’s currently appropriate for them.

Healthcare costs are on the rise – currently at a rate of 3% per year. There are so many new wonderful technologies and treatments available, and more will come – but they all cost money. And some procedures may not be covered by Medicare or other insurance. Out-of-network providers, too, can be extremely costly – and the specialist you absolutely must see may not be in your network.

Further, you may want to lock in long-term care insurance at a younger age, which could give you more favorable rates; you may want to purchase space to live in in a community with flexible care, adaptable to your needs, at today’s lower prices.

In light of all these variable, don’t underestimate the cost of post-retirement healthcare! Plan ahead so that you won’t deplete assets you want to leave to your heirs and beneficiaries.

Family Communication

Family Communication The dynamics of money and family can make for uncomfortable topics.

But this is a conversation you and your loved ones need to have together, openly and as a family, in order to avoid bigger issues or surprises down the road.

One, or even two or three family meetings can help ensure everyone understands what’s going on now financially, what’s coming in the future, and how you plan to protect them and their own futures, while caring properly for your own.

I’ve known people who found themselves tangled in financial morasses while they were experiencing crushing grief over a loved one’s passing – and all because that family meeting never happened.

Don’t put those you love the most to you through this. Take control, make sure your wishes and desires, for yourself and your loved ones, are understood and will be carried out.

Insurance Beyond Healthcare

With retirement, a whole series of questions arise as to what insurance you need – what coverage do you keep, what coverage do you drop, what coverage do you add or increase?

If your employer provides disability insurance, that generally will cease when you retire. If you have private disability coverage, you probably obtained it in order to protect your family from the loss of your income – when you retire, that need normally no longer exists.

Life insurance, too, needs reviewing prior to your retirement. What was the purpose for which you insured your life? What would the purpose of life insurance be for you, now?

And what about your umbrella insurance coverage? If your net worth has increased significantly since you last reviewed your coverage, it’s time to take a look at it again.

In short, retirement is a major life event – one you should plan for carefully – so that you can assure yourself of the retirement lifestyle you want as well as your plans for your family’s future – well in advance.

Consult with your virtual CFO or other trusted financial advisor about every aspect of your life to which retirement will bring change – the above is only a list of a few commonly overlooked areas needing your attention.

Don’t leave your loved ones unprepared, guessing.

If you are approaching retirement, RFG can help you get your ducks in a very tidy row! Please click here to email us directly – we are always here to help.

Until next time –

Peace,

Eric

For more on planning for retirement, see:

What Your HSA Can Do for You – Now and in the Future

Increased Retirement Plan Contribution Limits for 2024

Roth IRAs and Income Tax Liability – How to Protect Your Assets

SECURE 2.0 Enacted – Key Highlights

Ensuring a Happy Retirement

Taxation in Retirement – Be Prepared!

Roth IRAs – To Convert, or Not to Convert?

Should You Roll Your 401(k) Into an IRA When You Retire?