Key Takeaways:

• Monitoring cash flow and other metrics can help you avoid overspending and underspending.
• Run the numbers on withdrawal strategies to find one that fits your situation.
• Don’t turn investing into your new hobby or sport.

 

Chances are, planning for retirement is one of the most important steps—series of steps, really—that you’ll undertake in your life. Indeed, most of us spend a great deal of time and mental energy over many decades trying to make sure our financial house is in order so we can eventually spend our remaining years doing what we want, when we want to do it.

 

Unfortunately, we don’t always put enough focus on making thoughtful decisions during our retirements. Maybe we overlook something important. Perhaps we veer off course from one or more of our strategies.

 

As a result, much of our hard work and planning during the pre-retirement period of our life can unravel once we enter our golden years—which, in turn, may put our retirement dreams and even our fundamental financial security in danger.

 

But don’t fret. There are plenty of moves you can make to avoid the biggest in-retirement financial errors that can potentially derail your plans. Here’s a closer look at some of those key mistakes—and how to sidestep them.

Mistake: Overspending

High earners who live extravagantly during their working years don’t always have the discipline to temper their spending in retirement to levels that can support them comfortably for the long term. Too often, even very affluent people with significant wealth find themselves overspending to the point where they’re in some amount of financial discomfort.

 

There are a few common culprits here. One is that some high earners can spend as they like during their careers without problems. So they don’t create budgets or watch their cash flow the way that others may need to do. The result: Once their incomes go away or are reduced, they lack clarity on the amount of money they need for the long haul.

 

The other main driver is simply getting carried away by “living it up” during retirement (especially in the initial years, when the thrill of newfound freedom can feel intoxicating).

 

How can you avoid this trap that’s so easy to fall into? Evaluate your income needs accurately going into retirement—and modify plans as necessary throughout your golden years. In particular, pay attention to cash flow numbers and how they fluctuate. That analysis should be a foundational part of your overall wealth management plan, along with other regular check-ins that enable you to see where you’re at.

Mistake: Avoiding “money talks” with family

Too often—for a wide variety of reasons—the heads of affluent families don’t discuss anything to do with finances with their heirs. As a result, family infighting can occur down the road when assets transfer (or don’t transfer, as the case may be) to the kids and other relatives. In the worst-case scenarios, family wealth is destroyed and family relationships are torn apart.

 

One solution that can be quite effective is to work with family members to create a formal family mission statement. This type of document spells out a family’s values and how family members want their finances to support those values. Such clarity can help heirs (and others) understand why family money is being allocated and passed on in specific ways. Understanding the values-based reasons behind an estate plan might not eliminate hurt feelings, but it boosts the odds of family members accepting the decisions. Wealth managers can be excellent resources for help with crafting family mission statements about money and meaning.

Mistake: Making missteps with Social Security

Even for those of us with significant financial assets, Social Security payments can be an important component of retirement income. For example, a high-earning couple potentially could collect $100,000 a year in Social Security, depending on their income and when they claim benefits. So it makes sense to avoid mistakes that could erode what Social Security might offer you.

 

It’s generally well known that claiming benefits too early can come back to bite you. For one thing, it can reduce your benefit if you keep working and earn more than a certain amount of income annually. Other, somewhat lesser-known potential mistakes include:

 

• Waiting too long to claim. Some people should at least consider claiming on the early side. They include (but aren’t limited to) single people in poor health who are unlikely to live several more decades, married couples who are both in extremely poor health, and people with a disabled child eligible for benefits through his or her parents.
• Avoiding work due to earnings limits. If you claim Social Security before Jan. 1 of the year in which you reach full retirement age, and earn above a certain threshold, your benefit is reduced by $1 for every $2 of excess earnings. But rather than saying no to paid work because of that fact, it can be smarter to keep generating income. The reason: The government will adjust your benefit upward once you reach full retirement age—meaning you may recoup the money you lost.

Mistake: Using the “wrong” withdrawal strategy for income

The “right” strategy will vary depending on an individual’s goals and other factors, of course. That said, it’s easy to use an approach that is inefficient or suboptimal in some way.

 

The worst mistake, of course, is to have no plan for drawing down a nest egg over time and instead “wing it.” But a plan that’s too simplistic or that doesn’t reflect your personal situation well can be nearly as problematic. A withdrawal strategy should factor in health and life expectancy, income timing needs, and how various accounts may be taxed if you pull from them. Your current age is another big consideration, as required minimum distributions from certain accounts could push your taxable income significantly higher—forcing you to pay more in taxes on your income, Social Security benefits and dividends from a non-retirement account.

 

Best bet: Consider various options and run the numbers. For example, don’t assume a “rule of thumb” approach—such as the 4 percent per year withdrawal rule—is automatically right for you simply because it’s relatively easy to understand. However, don’t discount it out of hand because it seems too simple and straightforward.

 

Clearly, a plan for retirement income can be a challenging puzzle to solve. This is an area where guidance from a trusted and experienced professional can make your life significantly easier.

Mistake: Making investing your new part-time hobby

Faced with lots of extra time and an attractive bottom line, some retirees decide it’s a great time to “play the markets.” Often this occurs among self-made individuals such as former entrepreneurs, who might assume that they can easily apply their business success skills to investing and achieve similar results without breaking a sweat.

That overconfidence can potentially lead to classic investment errors—investing too aggressively, chasing hot tips, over-concentrating assets in a single company or sector, excessive trading that cuts into returns or boosts taxes owed, and others. The fact is, the skills needed to build a great company are not always the same skills required to grow and preserve wealth to meet a broad range of personal financial goals late in life.

 

Best bet: Don’t turn your wealth into a new game or hobby. Get the right team of experts around you who can either guide you in your investing efforts or perhaps even take the reins, depending on your level of investment knowledge and the amount of time you want to spend on investing.

Mistake: Getting scammed

Too often we think of falling for a financial scam as something that happens to other people—less-savvy or less “with it” individuals, say. That’s a potentially dangerous attitude to take about both your wealth and your own ability to avoid getting taken by criminals.

 

One reason: Our financial decision-making skills tend to peak in our early-to-mid-50s and decline after that. The sheer number of baby boomers in their 60s and beyond means that financial scammers have a potentially huge audience to target. Indeed, the Centers for Disease Control and Prevention has called subjective cognitive decline—the self-reported experience of worsening or more frequent confusion—a growing public health issue.

 

One way to combat the thieves is to get up to speed on their common activities, which include:

 

• Impersonating an online business. Increasingly, criminals pretend to be representing major online retailers, particularly Amazon. If you get an unsolicited email or text message seemingly from a well-known business that references unauthorized purchases on your account or other suspicious activity, don’t click or enter any personal or financial information. Instead, call the company’s customer support phone number found on its official website.
• Impersonating a state or federal agency. Some fraudsters pretend to be from law enforcement or tax collection agencies, and make threats that you’ll be charged with crimes or have your driver’s license revoked if you don’t call them back to “address the problem.” But legit government agencies use the U.S. mail for any such issues—and they won’t ask you for any passwords or financial information. They also won’t threaten you.

 

Best bet: Don’t panic if you get a call, email or text urging you to take immediate action—that’s what thieves are counting on. Instead, take a breath. Read the content very carefully. Rather than respond directly, call or email the agency in question to determine whether the message is legit. If you’re at all unsure, consult a trusted financial advisor or family member.

Conclusion

The fact is, there are many ways to potentially jeopardize your financial health in retirement—and there may be less time and fewer ways for you to recover from big financial mistakes once you’re out of the workforce. That’s why it’s so important to take steps aimed at helping you continue to make informed decisions about your wealth, even as you increasingly “take it easy” and look to enjoy life to the fullest.

 

 

 

 

 

 

 

 

 

VFO Inner Circle Special Report

By John J. Bowen Jr.

© Copyright 2023 by AES Nation, LLC. All rights reserved.

 

No part of this publication may be reproduced or retransmitted in any form or by any means, including but not limited to electronic, mechanical, photocopying, recording or any information storage retrieval system, without the prior written permission of the publisher. Unauthorized copying may subject violators to criminal penalties as well as liabilities for substantial monetary damages up to $100,000 per infringement, costs and attorneys’ fees.

 

This publication should not be utilized as a substitute for professional advice in specific situations. If legal, medical, accounting, financial, consulting, coaching or other professional advice is required, the services of the appropriate professional should be sought. Neither the author nor the publisher may be held liable in any way for any interpretation or use of the information in this publication.

 

The author will make recommendations for solutions for you to explore that are not his own. Any recommendation is always based on the author’s research and experience.

 

The information contained herein is accurate to the best of the publisher’s and author’s knowledge; however, the publisher and author can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof.

 

LPL Tracking #471787