If you ask most folks who are heading for retirement what their major goals are, you will get an answer something like this: I hope to maintain my current lifestyle and I do not want to run out of money until I die. And if you ask them if they will make it, they will most likely say, they think they will.
Yet, the decisions people make may be too optimistic and may actually sabotage those very goals. Let me give you some examples.
- Taking early retirement packages because they are offered. If you do this in your 50’s, you have potentially 40 years of income needs. Where is the income going to come from? Many hope their assets will “hold out”. Perhaps consideration to sticking with the current job, finding another one for cash flow and knowing if assets will “hold out” is a better plan.
- Thinking you will live well today and cut back when you are really old. Catch 22 here. You may be able to work now but that is not the case when you are 8o years old and need the income to cover inflated expenses and health care costs.
- Buying too much house with too big a mortgage because houses always appreciate. Homes are often the biggest investment consumers make but not necessarily the best investment. Homes have not appreciated much in the past 15 years and many folks have pulled out the equity like they are a bank account. When selecting a home as you near retirement, consider if you will be able to continue to afford to live in it.
- Leasing high priced cars and several of them. We have been sucked into the “I deserve a nice car” advertisements. Consumers are enjoying expensive rides, but they are putting out big bucks each month for the pleasure. Most people know the cheapest way to buy a car is with cash. If we put on that sensible hat when selecting cars, even when leasing, we might make some very different choices and have money at the end of the month to save toward retirement.
- Being overly generous to family members when you may not be able to afford it. You are kindest to your family when they don’t have to worry about paying your bills.
- “I am in great health!” I do not need expensive health insurance, long term care insurance or life insurance. It can’t happen to me syndrome is alive and well. A little hedging with insurance to cover these potential risks is prudent.
- Last but not least, if I am careful with my investments, I can make at least “X”%. Maybe, but risking your financial future on an overly optimistic number is a disaster. Remember we are talking 30- 40 years of retirement income here.
How do you avoid these pitfalls and yet have a good life today? You have a financial plan. A plan is like a road map. It should help you to get to where you want to go without taking too many side roads. A plan helps you pick and choose what you want today but plan for tomorrow. A financial plan is based upon realistic expectations and not hopeful or optimistic expectations.
The information contained in this report does not purport to be a complete description of the securities or markets referred to in this material. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.