Four common retirement-planning mistakes to avoid

http://www.marketwatch.com/story/four-common-retirement-planning-mistakes-to-avoid-2015-10-27

We all make mistakes. The key in most facets of life is to learn from those mistakes and avoid repeating them. Unfortunately when it comes to retirement, I have seen investors repeat the same mistakes over and over again, and the long-term damage caused is great. For individuals looking for a comfortable retirement, here are a number of common mistakes to avoid.

No plan: Too often I meet with retirees who, when I inquire as to their goals and needs, give me a blank stare. I can’t stress enough the need to define goals and needs when retirement approaches, and to update those goals and needs as they change. It would be best to look for the services of a financial planner that will work with you to manage your money and financial goals.

Todd Tresidder, the Financial Mentor writes, “Stated simply, you can’t get to where you want to go if you don’t even know where the destination is. You must set the goal and then design a plan to achieve it. Failing to plan is the same thing as planning to fail. The sad truth is most people spend more time planning their vacation than their financial future. You must be different.”
No clue about spending: In an initial meeting with a prospective client, among the questions I ask is, “How much money do you spend?” Much to my chagrin, most people can’t answer that question, but for a retiree, that lack of knowledge can lead to running out of money and having to move in with the kids.

Many in the first few years of retirement, without a budget, end up spending much more than they are able to as they travel the world, or partake in high-priced hobbies or eat out at restaurants on a regular basis. Over-spending at the beginning of retirement will make it much harder to have money left as the years pass.

Remember that 95% of the time the money that you retire with is all that you will have, and if it’s over proportionally spent early on, you will need outsized market returns to rebuild the wealth already spent. Once in retirement, never count on unusually high investment returns as a retirement plan.

Asset allocation: Often due to the fact that retirees have no budget, and they do not know what kind of income needs they’ll have. I often see investor portfolios that are far too aggressive than they should be. A market drop can be devastating for a retiree if they suddenly need a chunk of cash.

As retirement approaches, you should figure out how much you will need to withdraw in the first five years of retirement. Then start to shift that money into more conservative investments to make sure that you will have that five-year runway. Yes, you may give up some capital growth, but it’s more important that you know that you have the money to fund your new lifestyle. As you go through retirement, I like to apply the same five-year bucket approach of keeping that money safe, so that you always have that peace of mind.

No access to money: As retiree’s age, they usually don’t add someone to the account to execute changes on their behalf. I advise retirees to give a child or a trusted confidant trading authority. This way, if the client can’t fully supervise the account, it doesn’t become frozen. More than once I have seen a case where an older client had an individual account, and took ill. They are unable to execute any instructions in their account. This is the time when access to money is extremely crucial, and since the individual is the only one with any authority over the account, the money becomes as good as locked up.

There are many ways to go about this that provide for checks and balances. Perhaps you will want to require two signatures from a list of three possible signers. Perhaps you draw up a power of attorney. Consult with your family and advisors to devise a plan and instruments that work for you to give signing authority to someone. I can’t stress enough the importance of taking care of this before it’s too late.

Learn from the mistakes of others and avoid those same pitfalls to help ensure a financially comfortable retirement. You may also consult a retirement planning expert to discuss your options after retirement.