Avoid These Costly Retirement Mistakes

When you’re developing your game plan for retirement, you obviously want to have victory. You want to have success in that game plan, correct? Well just like any sporting event or some sort of thing going on out there, we want to avoid the losses. We want to avoid penalties and all that sort of stuff like that. So let’s talk about avoiding these costly mistakes in your retirement planning and in your retirement for the long-term. Now there’s lots of different kind of traps out there where they can trip you up and cause challenges and stuff like that. But I’m going to give you three today that I think can be easily avoided or at least easily planned for. And there’s some of the bigger ones that we see out there that can really put a wrinkle in things as you get into retirement or even further in retirement. The first one, it seems simple enough, but not saving enough for retirement. One of the most common questions I get asked as a Financial Advisor, how much do we need to retire? Well it depends. I know you’ve heard me say that before if you’ve watched this show for long. It really depends. Every individual is a totally unique situation. Don’t get caught comparing yourself to your neighbors, your coworkers, your friends, family, stuff like that. Because likely their situation is different than yours even though you maybe live on the same street or look like you live the lifestyle. There’s a lot of other things behind the scenes that are going to be different. So when we talk about saving enough for retirement, it’s going to be different for every individual. Do you want to have enough savings to provide for income? Inflation, taxes, health care. What about your hobbies or goals that you have in retirement? Travel? Helping your kids or grandkids? Those unexpected home repairs or things coming up? So all those various things when you’re looking at that total retirement plan, make sure you’re factoring all of those things into the stuff that you want to do. Because it’s vitally important when you think of having enough to retire that we want to have all of that sort of stuff mapped in. The next thing that we want to talk about or avoid is taking too many or too large of withdrawals early in retirement. You know, I’m all for a sense of adventure, but sometimes I’ve seen folks kind of get into this. They want to self reward themself for a job well done or for a retirement thing. So right away early in retirement they buy themselves some large, almost thank you or appreciation gift. Wonderful idea, maybe it’s something you need, but be careful you know with this sort of stuff, especially is you’re using your retirement savings to do that from like a 401 or IRA. So I’ve seen folks come right into retirement day one, buy very nice pick up trucks, tractors, boats, campers, RVs, maybe a second home. I’m not saying you shouldn’t do that, be careful and make sure it matches your plan because again, those large withdrawals especially early on, you lose that lifetime of savings or earnings potential on that money. The final thing to take away from this or a costly mistake to avoid, generating a high tax bill that erodes your savings. So just like talking a little bit ago where I talked about taking those large withdrawals, likely speaking most people’s retirement savings consists of pre-tax money, 401K, IRAs, that sort of stuff that every dollar that you take out is going to be taxable. So the more distributions you have, the higher your tax bill potentially could be. It might put you in the next tax bracket. It might make the difference of paying let’s say 12% versus 22% on that same dollar. Again, looking at how that affects you long-term is going to be vital. And even on a year by year basis. So oftentimes somebody will call us up here that’s a client or they start looking at taking a distribution and they’ll say I’m looking to buy something. Pick anything out there and I need $20K, okay. Well what are we going to have to take to get you that $20K? If we want to grow something for taxes and depending upon the tax bracket that you’re in, you could end up taking $25K, $30K or more just so you can net that $20K after taxes. So as you’re planning for your retirement and you’re thinking of how you want this to look and you have this magical dream in your mind of what retirement looks like for you. Be careful about some of these costs and mistakes that come along the way and cause some bumps in your path. If you’d like to talk about your retirement plan and making sure that somebody is along side of you to help avoid these mistakes and so you have a partner in this retirement plan. Give us a call. We’d love to walk through this journey with you at Centennial Wealth Advisory here in any of our office locations across northern Michigan. I hope you enjoyed this here and have a great day.