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Top 10 Mistakes Retirees Make | Finance Speaks

July 19, 2019


Hello, welcome to Finance Speaks, I’m Kyle Sadler, President of Precept Wealth Management and best-selling author of I’m Retired, Now What. Today we are going to cover the topic of the 10 common mistakes retirees make.

 The first mistake is that many retirees ignore (or don’t understand) the financial implications of working in retirement.

 Social Security defines “early” retirement as any time between age 62 and 67. Some people retire early with the idea that they will continue working part time. This mistake can cost them.

Under Social Security rules, if you retire early, your benefits can shrink up to 30 percent. If you continue working, you’ll lose up to $1 of Social Security benefits for every $2 in earnings above $17,640 (in 2019). Ouch, that hurts!

So what if you wait to retire until full retirement age? You won’t have to worry about a reduction in your Social Security benefits. BUT taxes could be an issue as income from most sources will have tax implications.

My best advice is to do your research and do math prior to filing for SSI.

The second mistake is not understanding the implications of early retirement.

 How do you know if you will have enough income once you retire?

There are two good rules of thumb to determine what you’ll need: the first rule of living on 60 to 80 percent of your pre-retirement income and second the “multiply by 25” rule.

The first rule is just multiplying your current income by 60 to 80%. Easy enough.

This second rule uses the desired income on your savings in a calculation that determines a rough estimate of how much money you should have accumulated by the time you begin retirement.

Now that you are looking at me with a confused look, let me explain a little better how the second rule works: if you want to have $40,000 per year income, you would need to have saved $1,000,000 (25 x $40,000).

Every situation is different, so be sure to consider the amount of income required while working, your desired lifestyle in retirement, health concerns, travel desires, etc.

The third mistake is choosing the wrong assets or accounts for income.

 One of the biggest questions for many retirees is, “which assets or accounts should I use first?”

Some retirees may make the mistake by not considering the income tax and possible estate tax implications of distributing a particular asset or account. When meeting with your financial professional, consider various investment types to cover and match the fixed and variable expenses. Also, consider waiting to draw Social Security.

The fourth mistake is choosing the wrong income or payout options with a retirement plan.

There are different payout options that retirees can choose from including a lump-sum payment, periodic withdrawal plans, withdrawals for life and taking income payments from a non-qualified annuity.

You need to make sure that you are selecting the payout option that works best for your situation. I know that is a lot of options and that is why I am here. As a financial advisor, I have experience looking at these options and looking at the most important needs to determine what would be the best case scenario. Everyone is different; there is no “one size fits all” in retirement!

The fifth mistake is the failure to adequately manage in retirement.

If you have a financial advisor, our job to make sure that this isn’t a mistake that happens to you. Without proper asset management, it is not likely that you will meet your retirement goals. Diversification is just as important in retirement as it is during your income-producing years. You never want to put all your eggs in one basket. I did a whole video on why diversification and asset allocation is important. The key is choosing the right balance of investments in retirement. If there is any doubt, my best advice is for you to spend the money and visit with a fee based advisor to provide guidance.

The sixth mistake is not understanding the financial impact of “hoarding” assets.

If you haven’t noticed, people are tending to live longer than any other period in history. This means that naturally retirees are concerned that they will outlive their assets and become a burden on their families. What they need is a realistic view of expenses and the money that they need to live. There are many investment types that are specifically designed for the various needs. As a retiree, you want to find investment types that fit and are comfortable for you. Retirees want to feel more comfortable using their investments to meet personal needs in retirement.

The seventh mistake is having inadequate/nonexistent estate or insurance planning.

Please do not take this one as legal advice; take is as common sense advice.

There are three critical documents you should have:

  • A current will, so you can choose how your assets are distributed.
  • A current living will, so you can choose in advance the type of medical care you want or do not want if you are incapacitated.
  • A current Power of Attorney, so you can choose who will manage your assets in the event you are unable to.

Did you notice that I said current before each one? Yes, make sure your legal documents are up to date.

Other important needs to plan for include long-term care planning, health insurance, prescription drug benefits and life insurance.

These simple measures will assist your beneficiaries in remaining solvent when you have completed the right planning.

The eighth mistake is failure to plan properly for beneficiaries.

I know it’s not something that people like to talk about but it’s a talk that every retiree needs to have. Planning ahead for life and death decisions means making sure that beneficiaries are designated so that the assets can pass outside of probate and go to the person(s) you intend. It also addresses the tax and distribution implications of naming a spouse versus non-spouse as beneficiary on an IRA annuity.

Also, making your beneficiaries aware of where documents are located will assist in reducing frustration and possibly even costs during this emotional period.

 The ninth mistake is failure to make a “healthy” transition into retirement.

Retiring from something, not to something is a common mistake. To avoid this, you must make a serious effort to stay mentally, physically, and socially active. Retirement can be fulfilling combination of quality leisure, satisfying work, and the pursuit of self-knowledge, a time to build closer connections with family and community and to make more time for physical and mental fitness. It is a time to live your life and fulfill your dreams.

So before you retire, figure out, what are you going to retire to?

And last but certainly not least, the tenth mistake is failure to act.

Living broke in retirement or failing to provide for your beneficiaries is the result of becoming complacent about your income, your plans and your investments. The solution: stay personally involved and seek the help of a financial professional. Make sure you ACT before it is too late.

Even today with all my years of experience, it still saddens me to see the poverty among the elderly. Please, start planning now. There is a period that represents a critical time in your investing life. That’s the five years before you retire and the five years after you retire.

If you’re in that ten year zone, it’s important to evaluate your retirement assets and make every efforts to grow and protect those assets so they can generate income that will last your lifetime.  And folks, this is how Finance Speaks.

We thank you for watching this segment of Finance Speaks as we discussed 10 common mistakes retirees make, this is Kyle Sadler headed out until next time. Be blessed and have a grrrreeeaaaat day.

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Precept Wealth Management
19506 Highway 59 N, Suite 315
Humble, TX 77338

Office: (281) 973-9290
Fax: (281) 973-9602
Email: info@preceptwm.com


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