About 10,000 people retire each day with dreams of the future and a bucket list full of items to check off. Unfortunately, many retirees may encounter hardships that, had there been proper preparation, could have been avoided. No one can predict your future health conditions, financial markets, tax rates and so forth. But, with a well-structured comprehensive plan, you can move into a better-prepared position for the emotional, physical and financial fluctuations that retirement may bring.
With over a decade of experience in retirement planning, I wanted to share my retirement anti-bucket list, featuring 10 common blind spots that you probably do not want to experience as a retiree. These potential problems can significantly disrupt a well-intended retirement and its associated financial plan. I hope that you do not encounter any of the following issues during your retirement. If you do, I hope that you are prepared accordingly. Let’s begin.
1. Working longer than necessary
One of the most common retirement misconceptions is the belief that one must work until a specific age or accumulate a certain amount of savings, say, $1 million, to retire. Much of this is rooted in oversimplified financial planning and generic assumptions.
If you create a comprehensive financial plan that considers your individual financial situation and personal lifestyle preferences, then you may discover that you can retire sooner than anticipated. Others might find that they can transition from full-time work to a more enjoyable part-time gig while maintaining their financial stability and desired lifestyle.
Time is a precious resource, and how you spend it matters. I strongly recommend individuals age 55 or older to work with a retirement professional who can help them run their numbers and create a comprehensive retirement plan while providing guidance on how to navigate the complexities of retirement and beyond.
2. Coping with loneliness
Many individuals underestimate the void that retirement can create in their lives. Watercooler conversations, team meetings and other workplace interactions may have played a more significant role than they realized.
For single retirees, loneliness in retirement can accelerate mental and physical decline, affecting the individual’s overall well-being. It's crucial to stay engaged in social activities by participating in community groups, volunteering or reconnecting with old friends to build a fulfilling retirement where you’re surrounded by a supportive network.
Regardless of your relationship status, different forms of loneliness can affect you. Your significant other may not be able to provide all that you need, and that’s OK. Ensure you surround yourself with many different individuals with different backgrounds who can help fulfill your emotional, physical, spiritual and intellectual needs.
3. Battling depression due to lack of purpose
Maintaining a sense of purpose is vital for happiness in retirement. Whether you pursue hobbies, start a new business venture or devote your time to a meaningful cause, having a sense of purpose will keep you motivated, positive and eager to embrace each day's opportunities. Make sure you have a reason to get out of bed in the morning.
4. Dealing with a just-in-case retirement
The fear of running out of money often leads to a “just-in-case” retirement strategy, which can create unnecessary budget constraints and concerns. Building a retirement plan that gives you the confidence to enjoy your early retirement years while you’re still energetic and healthy should be the goal.
For some, that could mean having extra funds for additional travel during the first few years of retirement while you are still healthy. For others, it could mean spending more time with family.
5. Tightening budgets based on market mayhem
Markets have historical patterns that may not always be favorable, such as crashes occurring every seven to eight years or flat market cycles lasting 10 years or so, that seem to show up every 20 years or so. Drawing income from an account that has already lost money can accentuate the loss, making it harder to sustain financial stability in retirement. This is referred to as sequence of returns risk.
Many retirees tighten their budgets when markets decline, or they use annuitized income streams to navigate challenging times. I personally don’t recommend either strategy. Instead, I personally use something called a Principal Guaranteed Reservoir™, which helps a portfolio maintain growth potential, protection and liquidity while dynamically providing income throughout retirement.
Regardless, it is important to have a plan and a series of strategies that allow you to keep income coming in without accentuating losses when markets go down.
6. Handling health-related financial hardships
Health care costs must be anticipated in retirement planning. It can be a tricky situation if one spouse's health leads to financial difficulties for the other. Self-insuring is a wonderful option for those who can afford it and have time to plan accordingly. Using asset-based long-term care insurance can be a good alternative to help lessen the potential blow to the overall estate for those who may have less or not as much time to prepare.
7. Fumbling relationships and legacies
Inadequate estate planning can leave a legacy of resentment and ruined relationships. If you intend to leave assets like vacation properties, ensure that your heirs can afford their maintenance. If you have family heirlooms, make sure they are noted in your estate documents. Clarify your wishes and intentions to help avoid ambiguity and ease the transition when you pass.
8. Focusing too much on the 0% tax bracket
While the idea of the 0% tax bracket may sound appealing, the cost of getting there is often higher than expected. Many people could potentially have more retirement income to enjoy and/or pass more assets to their beneficiaries if they understood the delicate balance of tax planning based on your effective tax rate.
9. Supporting capable children
Just like they say on airplanes, “If your oxygen mask is deployed, put your mask on first before assisting others.” Your assets are there to support you and your desired quality of life first. Prioritize your own financial well-being before offering extensive support to your children.
10. Managing high-interest debt
Retaining low-interest debt in retirement is acceptable if it aligns with your overall financial portfolio. Based on your individual situation and preferences, you may keep some low-interest debt, while others who are more focused on cash flow may pay it off. It just depends on what you want and what you are comfortable with.
High-interest debt, particularly when it exceeds your investment earnings, should be addressed promptly to help secure your financial stability during retirement.
Time is your most precious asset; don't spend it in a state of fear. Retirement should offer some of the best years of your life. Take the time to craft a comprehensive retirement plan, potentially with the assistance of an experienced retirement professional, to tackle these challenges head on.
Mike Decker is the author of the book How to Retire on Time, creator of the Functional Wealth Protocol, and the founder of Kedrec, a Registered Investment Advisory firm located in Kansas that specializes in comprehensive wealth planning and management at a flat fee. He specializes in creating retirement plans designed to last longer than you™, without annuitized income streams or stock/bond portfolios. In addition to helping people achieve their financial goals, Decker continues to act as a national coach to other financial advisers and frequently contributes to nationally recognized publications.
Nine Steps You Can Take Right Now to Build a More Financially Stable Future
Taking even just one of these steps can set you on a better path toward financial success.
By Kiplinger Advisor Collective Published
Marriott Bonvoy Bonus Offer: Five Nights Free
Get five free nights, worth up to $1,750, with a new Marriott Bonvoy Boundless Credit Card.
By Ellen Kennedy Published
Three Common Mutual Fund Misconceptions Debunked
Mutual funds let investors access a basket of securities rather than buying individual ones on their own, but there are some misconceptions about them.
By Brian Spinelli, CFP®, AIF® Published
529s: No Longer the Ho-Hum Investing Device for College
Changes to the plans allow for the savings to be rolled into a Roth IRA, as long as certain rules are met, if a child decides not to pursue their education.
By Neale Godfrey, Financial Literacy Expert Published
To Make the Case for Equities in the Long Term, Look to the Past
While cash yields are attractive now, if we look at the performance of equities in the past, we can expect that, going forward, they could be a better bet.
By David Blanchett, PhD, CFA, CFP® Published
Workplace Financial Coaching Has Become Ever More Important
Employees face growing challenges to their financial wellness today, so it’s more critical than ever that employers provide the help they need to navigate them.
By Greg Ward, CFP® Published
Six Reasons to Use a Real Estate Agent When You Sell
So many financial factors depend on the outcome when you downsize for retirement that enlisting a professional can be well worth the price.
By Evan T. Beach, CFP®, AWMA® Published
Looking into Leasing Solar Panels? Think Twice
Leasing solar panels hasn’t turned into the great deal that many expected as solar companies go out of business and tax breaks and incentives get slashed.
By H. Dennis Beaver, Esq. Published
Three Reasons Not to Use a Real Estate Agent When You Sell
While this financial adviser doesn’t recommend taking that route, he does see scenarios where it could make sense for you.
By Evan T. Beach, CFP®, AWMA® Published
Soon-to-Be Retirees, Beware: Small-Caps Are Cheap for a Reason
Higher interest rates make debt more expensive for smaller companies, and that could become challenging for them if we head into slower economic times.
By Michael Joseph, CFA Published