5 Things Not to Do When Planning Your Retirement

Retirement presents a unique set of challenges that many of us never think about even as we plan for it. Preparing for retirement is a different ballgame than what we played while working and building up our wealth. This is truer now than ever before as demographics continue to change and, as they do, so do our retirement needs. We're living longer, and the risk of outliving our money is very real for many of us. Add in other factors, like health care costs, taxes, inflation and volatility in the stock market, and retirement poses quite a few challenges.

It's helpful to know what to do to plan for retirement, but it might be just as important to know what to avoid, because there are plenty of missteps you can make. Here are five things you should not do as you look ahead to retirement:

1. Don't forget to do your research on advisers. Finding the right adviser is important as you plan your retirement. That sounds simple, but there are plenty of challenges as you look for the right adviser, especially as there are many of them out there.

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One way to help find the right one is by checking out their backgrounds. Simply put, there are three "worlds" that financial planning advisers come from: Wall Street, banking and insurance. Sometimes advisers have backgrounds in all three worlds, but there are some advisers out there whose expertise is more limited. Examining potential advisers' backgrounds will help you determine who is an expert retirement planner and who is more of a specialist in one area. You need to do the necessary research, which should include a FINRA broker check, and find out what licenses a potential adviser has. Doing your homework here will pay off in the long run.

2. Don't assume the person who got you to retirement can get you through it. Too often, investors assume that the adviser or broker who helped them grow and accumulate their money can automatically shift into preserving it and generating income. In today's challenging economic times, where interest rates and bond yields are low and volatility in the stock market is high, retirees are going to face perils and risks as they look ahead to the future. Other factors, including longevity, the increasing possibility that retirees will outlive their money, health care costs and inflation, only add to the challenges that come with retirement. Many advisers, even if they have excelled at helping you build your wealth, simply aren't equipped to handle retirement planning. Many of the strategies that helped you to retirement won't help get you through retirement. It may make sense for you to work with a retirement income specialist instead of a generalist.

3. Don't automatically pass on annuities. Annuities are increasing in popularity, even becoming one of the most searched financial terms on the Internet. The problem is when you enter the term "annuities" in Google, you will get more than 14 million responses. Half of those results might praise annuities, while the other half might chastise them. The truth is in the middle. Annuities aren't a good fit for every investor, but today's variations provide the solutions that many retirees are looking for. Keep in mind most annuities today aren't what they were decades ago when they were hindered by a lack of flexibility and high internal costs. The insurance industry has come a long way in creating annuities that are far more favorable to consumers. Unless you work with an independent planner who represents more than one insurance company, you might not get a complete picture of the various types of annuities and how they can help your retirement. Many retirement-minded investors can benefit by placing some of their retirement income into certain annuities.

4. Don't assume you can do it alone. Even investors who have done their research and picked the right investments without relying on an adviser find challenges transitioning into retirement. At the end of the day, all of us have emotions that can get in the way of our financial security. Studies have shown that over a 20-year period, do-it-yourself investors only get 50% of what they could from the market. People sell and buy at the wrong time, which is often the result of emotions. When the market drops, we can panic and sell low. We don't get back into the market until it's recovering, and we buy high. Financial advisers are pros; they know how the market works, and they don't let their emotions dictate how they invest.

There's another risk in doing it yourself: reverse dollar cost averaging, better known as the sequence of return risk. This can sink your retirement if you're not careful. Go back to 2008 when people who pulled out of the market had to sell low. Often, their portfolios never recovered.

5. Don't forget about long-term care risk. As we live longer, our health care costs will take up more of our retirement savings. While we often save for medical expenses, sometimes we overlook long-term care costs. These can include relying on an in-home nurse, an assisted living facility or a nursing home. The odds are good that seniors will need long-term care, and that's expensive. You need to take long-term care into consideration as you plan out your retirement; otherwise, a large part of your portfolio could wind up paying for it. At the very least, it is a risk you need to factor into your retirement planning, especially if you have between $350,000 and $2 million in assets. Once you exceed the $2 million benchmark, self-insurance may make more sense.

Looking over those five things to avoid, one thing becomes clear: You should work with an experienced adviser who focuses on retirement planning. A good adviser can help you maneuver through the often-complicated minefield of retirement planning and remind you of what not to do as you look ahead to the future.