February 18th, 2020
Money mistakes are like termites. They can gnaw away at your wealth. You might avoid major consequences for years-right up until you realize that a comfortable retirement has slipped away. In a survey from ING Direct, 30% of U.S. retirees say they don’t have the same standard of living they enjoyed while working. Of the respondents still working, 24% expect to make a change in their lifestyle after they retire. 64% of pre-retirees will need to find another form of income in retirements, such as part-time work or selling assets.
Annuity Marketing Manager
A leaner lifestyle and working a part-time job isn’t anyone’s vision of a perfect retirement. Make sure you’re advising you’re clients on these common retirement mistakes so don’t go in the wrong direction and wreck their retirement.
1. Your Clients Shouldn't Rely on Social Security
Social Security usually replaces only about 40% of your annual income. If you don’t have a plan to cover the other 60% you might have to make some pretty drastic adjustments to make ends meet.
2. Avoid Solutions that Save Less than 15% of Annual Income
Saving a $100 monthly might be fine for an emergency fund, but it won’t work for your retirement account. Folks will probably need $1 million or more to fund their retirement. And you probably won’t make that goal with small deposits.
Alternatively, you could save 15% of your $50,000 salary at a 7% growth rate and after 30 years you would have approximately $767,000. If you have fewer than 30 years before your target retirement date, increase that percentage to 20 or 25% to make up for a lost time.
3. It's a Mistake to Assume You Can Work Forever
It’s not uncommon to come across a client who still thinks their invincible. A TD Ameritrade survey questioned 2000 Americans ages 40-79 on their way to retirement. Among the respondents, half of them left the workforce sooner than they planned. Health issues prompted 38% to leave their jobs, and layoffs affected 22%. Your timeline for retirement isn’t always within your control.
4. Retirement Savings Won't Last For Those Who Want the High Life
If you have a lavish lifestyle in your working years you might have a leaner lifestyle in retirement. Spending on expensive vacations, fancy meals and expensive cars could reduce your wealth and reduces what you could put into your retirement accounts. You also would become accustomed to a lifestyle that you couldn’t afford once your paycheck goes away.
That’s not to say you can’t take a vacation and have a nice car. You would just need to scale it back and then you could direct the money you saved into your retirement accounts. You’ll be glad you made those choices with money in the bank when you decide to retire.
These are just somethings that can really make a retirement not a happy time in life. A lot of people think that social security is going to be enough to get them through retirement.
Most people I talk to are more afraid of running out of money than dying.