Have you ever heard this expression?
“Good decisions come from experience, and experience comes from bad decisions”
Don’t you wish you could just skip to the good decisions part? Well the next best way to make good decisions aside from your own bad decisions is to learn from OTHER’S experience. Being in my second decade of helping retirees, I see common patterns of mistakes that retirees can make and you can avoid.
Using the same investment approach in your distribution years as you did in your accumulation years.
The most common mistake I see in the area of retirement planning is the way that retirees go about securing their retirement income. Because it’s all they know, they continued to use the same investment strategy as they did during their accumulation years. They systematically withdraw money from this portfolio for their income needs.
By doing this, they ignore the sequence of return risk in which a poor series of negative returns, especially early in retirement, can cause their investment portfolio to deplete sooner than anticipated and run out of money.
Maintaining the same level of risk in their investment portfolio as they approach retirement.
Many pre-retirees don’t understand the “fragile decade”. This represents the last five working years in the first five retirement years. These 10 years of investment returns represent the most potential impact to a successful or unsuccessful retirement.
Unfortunately, many workers nearing retirement don’t reduce their investment risk prior to retirement. As a result they run the risk of losing substantial amounts of wealth prior to retirement and jeopardizing their outcome.
Ignoring all available assets when doing retirement planning.
Nearly ⅔ of all retirement assets are in home equity for current retirees. Ignoring tapping home equity and housing wealth as a viable alternative to securing your retirement can be unwise.
Successful strategies utilize housing wealth as a backup or alternative source to investment assets during key time periods in retirement. Some strategies improve the likelihood of success without necessarily reducing the total pass on value of all assets to heirs.
Taking the “Fire, Aim, Ready” approach to planning.
The typical approach, unfortunately, is the “Fire, Aim, Ready” approach. This is where you make the decision to retire before quantifying if you can afford to and then trying to make course corrections along the way only after mistakes have been made. In other words you “pull the trigger” on retirement or “fire” before having had the opportunity to make a thorough evaluation if you are financially ready.
At the end of the day, the most successful retirees get counsel from a trusted source before executing their plans. They take the “Ready, Aim, Fire” approach instead.
If you have any questions, feel free to contact me.