Don’t Make These Top 5 Retirement Planning Mistakes

They say experience is the best teacher, and there’s no denying the value of learning from your own mistakes. But let’s be honest, isn’t it better to learn from the missteps of others and avoid the bumps and bruises altogether? 

This is especially true regarding something as crucial as retirement planning. Unfortunately, many people make vital errors that can derail their retirement dreams.

The Bulman Wealth Group has decades of experience in retirement and wealth management in Roseville. Every day, we aim to help individuals and families avoid costly financial mistakes.

In this article, we’ll discuss five common retirement planning mistakes and offer strategies to avoid them.

Mistake 1: Neglecting To Start Early

Putting off investing for retirement can significantly reduce the future potential of your savings. For example, let’s say you start saving $200 a month at age 25 and earn an average annual return of 7%. By the time you reach age 65, your savings will have grown to approximately $545,000. However, if you wait until age 45 to save that same monthly amount, your savings will only grow to about $106,000.

Even if you start saving for retirement late, there’s still hope. 

A smart move is to make catch-up contributions. If you’re 50 or older, the IRS lets you put more money into 401(k)s and similar retirement accounts than the usual limits. This means you can save more, helping your retirement fund grow faster.

Even small contributions can make a big difference over time. Here are tips to get you started:

  • Automate your savings: Set up automatic transfers from your paycheck or checking account to your retirement savings plan. This ensures consistent contributions and removes the temptation to spend that money elsewhere.
  • Make gradual increases: Begin with a contribution amount you can comfortably afford and gradually increase it as your income grows.
  • Take advantage of employer contributions: Many employers offer matching contributions to your retirement savings plan. This is free money, so don’t leave it on the table.

Watch our newest video: “Uncover the Most Common Mistakes Made by Retirees”

Mistake 2: Underestimating Retirement Expenses

Retirement isn’t simply about escaping the daily grind. It’s a new chapter in your life that can come with often-overlooked expenses. Here are some to consider:

Inflation: It isn’t just a slow and steady threat anymore. Rising prices can quickly erode your purchasing power, making it crucial to factor inflation into your retirement planning.

Taxes: Taxes are a part of life, even in retirement. Be aware of the tax implications of taking distributions from your retirement accounts and other income streams.

Travel and leisure: Many people dream of traveling or pursuing hobbies in retirement. Factor in the cost of these activities when calculating your retirement needs.

Unexpected events: While you can plan for many expenses, unforeseen circumstances like home repairs, car issues, or helping out family members can arise. Include a safety cushion in your retirement budget for situations like these.

Several online retirement expense calculators can help you estimate your future needs. While not a perfect science, they offer a starting point for planning.

A better option is working with a Roseville financial advisor who can help you develop a comprehensive review of such expenses to create a more detailed and personalized retirement strategy. You can adjust your plan once you have a clearer picture of your retirement expenses. 

If you are still falling short of your expected retirement income, here are a few ideas that can help you compensate:

  • Delay your retirement age: Working a few extra years allows you to contribute more to your retirement savings and reduces the years you’ll need to rely on those savings.
  • Review your spending habits: Identify areas where you can reduce discretionary spending and reallocate those funds towards retirement savings.
  • Consider downsizing: If your home is a significant expense, downsizing may be an option to free up funds for other expenses.
  • Invest wisely: Consider working with a fiduciary financial advisor to create an investment portfolio that has the potential to generate the income needed for your desired retirement lifestyle.

Watch: “The Importance of a Personalized Financial Plan: Navigating Retirement with Confidence”

Mistake 3: Failing To Diversify Investments

Investing your retirement savings in one asset class or type of investment can be extremely risky. A market downturn or unexpected event could wipe out a significant portion of your portfolio.

Diversification plays a key role in constructing a retirement portfolio, making it more resilient to market volatility than portfolios with concentrated holdings. By spreading your investments across different asset classes, you can mitigate risk because when one asset class dips, others may perform well, balancing out your assets.

An experienced fiduciary financial advisor in Roseville can help you create a diversified portfolio that aligns with your risk tolerance and retirement goals. Here are some general guidelines:

  • Asset allocation: Your ideal asset allocation will depend on your age, risk tolerance, and time horizon. Younger investors can generally handle a higher percentage of stocks, while those nearing retirement may want a more conservative allocation with a greater emphasis on bonds.
  • Rebalancing: Over time, the weightings of different asset classes in your portfolio will naturally fluctuate. Periodic rebalancing helps maintain your target asset allocation.
  • Consider alternative investments: Besides traditional stocks and bonds, consider diversifying with alternative investments such as real estate, commodities, or private equity funds. These assets can provide additional sources of return and potentially reduce overall portfolio risk.

By failing to diversify your investments, you’re more exposed to ups and downs in the stock market and could significantly jeopardize your retirement plans. 

Listen to our newest podcast: “The 60/40 Portfolio: Does it Hold Up Today?

Mistake 4: Overlooking Healthcare Costs in Retirement

Healthcare expenses tend to rise significantly as we age, sometimes outpacing inflation. Even with good health, unexpected medical situations can arise, requiring significant financial resources. 

While Medicare helps cover some of these costs, it’s not a silver bullet. You’ll likely still be responsible for deductibles, copays, medication, and other out-of-pocket expenses. Additionally, the possibility of needing long-term care, such as assisted living, can incur substantial costs. 

Failing to plan for these expenses can leave a considerable dent in your retirement savings.

Here are strategies to manage healthcare costs for retirement:

Health Savings Accounts (HSAs) allow you to contribute pre-tax dollars to cover qualified medical expenses. Contributions grow tax-free and can be withdrawn tax-free for eligible expenses.

Medicare supplement plans (Medigap) help bridge the gap by covering deductibles, copays, and other out-of-pocket expenses associated with Medicare.

Long-term care insurance is designed to help cover the costs of assisted living or nursing home care.

Mistake 5: Not Having a Clear Financial Plan

According to a recent survey, a staggering 76% of U.S. adults experience at least some level of anxiety about their finances. This anxiety can be particularly heightened for those nearing retirement without a clear and up-to-date financial plan.

Having an updated financial plan in place can help alleviate these concerns. The process of creating a financial plan involves defining goals, both short-term and long-term. This clarity and focus lead to more targeted actions and better decision-making.

Financial anxiety can be a significant barrier to goal achievement. A plan can foster a sense of control, leading to increased motivation and perseverance toward your goals.

A comprehensive financial plan should include your income sources, retirement goals, risk tolerance, investment strategy, and estate and tax planning considerations. While the process can take some time, the goal of working with a financial advisor in Roseville is they can do the heavy lifting for you. 

At Bulman, we have a team of experienced financial advisors who understand the importance of precise financial planning.

How Bulman Wealth Can Help

For retirement planning in Roseville, engaging with a professional wealth management team like Bulman can help you sidestep common and costly financial mistakes. We are fiduciaries committed to your best interests.

At Bulman Wealth Group, we focus on assisting individuals in developing retirement plans that aim to last 30 years or more. It is our goal to create and maintain easy-to-understand financial plans.

Our proprietary plan, Your Financial Compass Roadmap, breaks down complex concepts into easily digestible retirement planning steps. Specifically, we focus on income, investment, taxes, healthcare, and legacy planning.

If you are retired or near retirement and want a retirement plan you can understand, schedule a 15-minute call

All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or an indication of future results.

Opinions expressed herein are solely those of Chris Bulman Inc. dba Bulman Wealth Group and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Investment advisory services are offered through Chris Bulman Inc dba Bulman Wealth Group, an SEC Registered Investment Advisor. Insurance products and services are offered through Chris Bulman, Inc. dba BWG Insurance Agency and Ameritas Life Insurance Corp., CA State Insurance License # 0M46922. Being registered as an investment advisor does not imply a certain level of skill or training.

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