By Edward “Ed” V. O’Neal, Senior Vice President and Manager, Retirement Plans
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The month of October – and the Fall season in general – has always been a popular time for nature lovers as it’s a perfect time to view the beautiful fall foliage. Additionally, the month of October is when many thoughts turn to Halloween when it’s fun to engage in scary activities, visit pumpkin patches and indulge in some trick or treats. However, for those that are planning for and nearing retirement, making key mistakes in the retirement planning process can lead to some very scary outcomes – and not the fun version! An effective retirement planning strategy is based on clear goals and a plan for attaining the assets and income stream needed to meet those goals. But on the way to achieving all of this, there are some common missteps that can lead to frightening and unintended consequences:
Failing to have a Plan
There’s a popular saying that states “most people don’t plan to fail, they simply fail to plan.” Many individuals don’t have a retirement savings plan due to procrastination, being uncomfortable making tough decisions, or believing that it’s too late to start an effective retirement and savings strategy. All of these excuses can lead to scary and devastating financial consequences. In fact, it’s never too late to build good financial and savings habits. Every little bit helps and with the benefit of compound interest and tax advantages available with some accounts (i.e. particularly retirement accounts), even small levels of contributions can accumulate into sizable nest eggs sooner than you think. Create a retirement savings plan that considers factors such as your planned retirement age, monthly income needs, general health, and the lifestyle you would like to lead. You can start with a realistic savings goal and budget your spending to help stay on track.
Not taking advantage of tax favored retirement accounts
While developing consistent savings habits are always helpful, don’t forget to take full advantage of tax favored solutions such as employer- sponsored retirement plans (i.e., 401(k) or 403(b) plans) if you’re fortunate enough to be covered by one. If one of these programs is available to you, consider maximizing salary deferrals and utilizing key plan provisions such as employer matching, catch-up contributions for employees age 50 and older, and Roth deferral options. If you don’t have access to an employer-sponsored retirement plan, traditional or Roth IRAs can also provide a tax favored vehicle for achieving retirement savings goals. Fully leveraging these tax favored solutions can help supercharge progress toward your retirement goals.
Forgetting to consider the impact of health care cost
If there’s anything that scares people more than running out of money in retirement, it’s the prospect of suffering a prolonged physical illness or health crisis during retirement. Health care costs can erode spending power and economic security for many retirees and poses one of the most serious risks to retirement security. Data suggests that the average couple will spend $285,000 on healthcare in retirement (and potentially more if there is need for significant long-term care*). In considering this potential cost, looking at insurance-based products may be a great way to help alleviate this risk when creating your retirement planning strategy.
Despite the scary unknowns and uncertainties with retirement planning, having a comprehensive plan, while eliminating the pitfalls that can derail that plan, can lead you to a successful retirement planning outcome and hopefully a more enjoyable Halloween season. Contact your financial advisor for help or questions with initiating a retirement planning process.
*Fidelity “Heath Care Price Check”, https://s2.q4cdn.com/997146844/files/doc_news/archive/b6f07a26-3aa9-4a98-af00-b1b783cfd552.pdf. Page 1.