Retirement train wrecks can happen to anyone. Granted no one has a crystal ball, however, the worst are the ones that are found when it’s too late to do anything about them.
Over the years, in talking with people about retirement, I have found three common mistakes that are very rarely addressed properly. In these cases, hindsight is always 20/20. Don’t let these three mistakes derail your retirement goals and retirement lifestyle.
Mistake #1 – Taking retirement risks you shouldn’t.
There several different types of retirement risk that people take during retirement that just don’t work out well. This is where finding an expert or veteran in retirement planning can help you.
Health insurance
It’s important when you’re retired that you get a health insurance plan that will comfortably mix with the amount of cash reserve you have on hand. Here’s an example of why. Say you have a plan that has a high deductible and you don’t have the cash to take care the high deductible, you end up often withdrawing from accounts that should best be left alone. Also, if you are looking at health insurance while you’re on Medicare, you must have the same consideration for the Medicare supplements that your purchasing. Most people realize the importance of Medicare supplements, but this can also be an undetermined risk for some people because they are unaware of the gaps in the Medicare program.
Long-term care
Notice I didn’t say that you necessarily need to have long-term care insurance but evaluate whether you can self-fund a long-term care need for you or your spouse. If you are not able to self-fund the need (and most people can’t) then you should consider a plan to transfer the risk and get some coverage.
The long-term care industry puts out a great little booklet called the Shopper’s Guide to Long-Term Care Insurance. It is filled with great information about different types of long-term care policies and has a couple of worksheets in it which help people make decisions about which long-term care policy is best for them.
Mistake #2 – Not having an income distribution plan.
I have heard more times than I can count the number of people that have said to me that they will simply adjust their lifestyle to fit whatever income they end up with. While most people do this to some degree, some also discover that they may end up going back to working a part-time job because they had not planned this out well. Knowing how much you’re going to need per month and finding a way to create that paycheck during retirement is a key to retirement happiness.
The next part of this however is to adjust your retirement savings and portfolio so that it is ready to send you that paycheck. In most cases, IRAs and 401(k)s are set up mostly for accumulation and not for distribution. Now If you’re thinking, “Well that’s simple. I’ll just go from 60 40/to 40 /60 on your stock bond mix”, then I would suggest you rethink retirement and adjust to the reality of today’s retirement. This rule of thumb has been commonly overused and does not accommodate most people’s needs.
Setting up a distribution plan is likely to require the assistance of a financial advisor. Seek out an advisor that specializes in retirement planning including distribution planning. A good distribution plan is the integration and maxing out of social security benefits along with the distribution of the retirement savings.
By the way, the first two train wrecks are predominantly financial.
Mistake #3 – Not knowing what you’re going to do with your time during retirement.
Now THIS mistake is not only personal, but is such a HUGE issue that I have an entire chapter dedicated to it in my book, Retiring in Turbulent Times. Not a week goes by where people tell me that part of what scares them about retirement is that they don’t have hobbies or interests developed enough to fill their day. Many people take on a new hobby when they are retired. A suggestion that I recommend would be this -get started at least three years before your retirement date. Here’s an example – I sat next to a gentleman at a wedding two years ago who had retired within the last six months and asked him how it was going. He said it was miserable because he had not developed a plan and at that stage it still not figured out what to do with his days. Additionally, for married couples this is a topic that takes some considerable discussion and reality checks. See if you can develop an interest that occupies both of your time so that you don’t end up retiring separately, which can and does happen.
Retirement train wrecks are very real. The ones I’ve mentioned are to provide some food for thought to proactive retirement planning. Heading off potential retirement train wrecks now can help in creating the retirement lifestyle you’re looking for in the future.