The Dangers of Avoiding Retirement Planning
Planning for retirement at or a few years prior to your desired retirement date is not prudent retirement planning advice, though it is how a majority of the working population operates. Considering how to plan for your retirement may feel more like a spring cleaning task than a doctor’s appointment. Many of us have put off chores for longer than we would like to admit, even if the mess is driving us crazy! Few of us, however, will put off making a doctor’s appointment when we are sick or in pain.
Unfortunately, many people are financially unhealthy and getting worse each day without realizing it. Understanding how to plan for your retirement may not seem urgent now, but neglecting to seek retirement planning advice is a great way to set yourself up for financial failure.
As it goes with procrastination, it is usually the first step that is the most challenging to overcome. Getting out of bed is harder than getting dressed. Oftentimes, figuring out what to do with the first box in the garage is more difficult than the couple of hours of organizing that follow.
The simple task of gathering financial data and making an appointment with a Financial Advisor is much more difficult than it is to actually meet and discuss how to plan for your retirement considering your unique circumstances. Constructing a financial plan is harder than implementing and maintaining one. The sooner you start seeking professional retirement planning advice, the more sound your retirement will be.
Next time you think “I can do that later”, consider the severity of the consequences. If you can’t get yourself out of bed in the morning, you may rush out the door and forget something. If you can’t get yourself to move the boxes, you might have to look at some junk for a while. If you don’t cultivate a holistic retirement plan you may end up working longer than you’d like and paying more taxes than you’d like.
RETIREMENT PLANNING GUIDELINES TO FOLLOW
- Max out available employer matches in your 401k or 403b.
There is an immediate 100% rate of return on employer matched employee contributions. If you aren’t able to contribute enough to receive the full match, contribute as much as you are able.
- Create attainable and consistent saving habits.
Make sure you set yourself up for success by putting in place attainable and consistent rules. If you’re only able to save $10 a week, do it! And do it without fail. The idea is to create a habit of saving, not to change your life over the course of a paycheck.
- Honestly evaluate your time horizon and risk tolerance.
How long do you have until you hope to stop working? How will your spending change when you stop working? Knowing this before you retire is key as these factors will determine the necessary rate of return your funds will need to generate to meet your needs. Then, you must consider whether you have the capacity to tolerate the risk associated with this return, and if carrying that amount of risk is advisable for your situation.
RETIREMENT PLANNING GUIDELINES TO AVOID
If you have read our other articles, you know that we are not fans of “rules of thumb”. Generic retirement planning advice can sometimes offer reasonable direction but severely lacks comprehensive analysis tailored to your current circumstances and future goals.
- “Always” retirement planning advice that relates to Social Security.
When to turn on social security is a decision that must be made in consideration of many variables including your current and future projected marginal tax bracket, your cash flow needs, and your spouse’s benefits.
- Rules that give exact figures for when you can retire.
Some popular rules are “have at least $1,000,000 saved” or “have 8x your retirement salary saved”. The amount of money needed in retirement is unique to you and dependent upon your lifestyle. Those who want to travel regularly, purchase a vacation home, or start their own venture in retirement may need more than these rules account for. For others, retirement looks like downsizing and settling in - if they were to follow these standardized retirement planning guidelines they may end up working longer than necessary to accumulate an amount of money they don’t need.
- The retirement planning advice your family and friends give you.
I’m sure they mean well but their situation is different than yours.
CONSEQUENCES OF RETIREMENT PLANNING PROCRASTINATION
- Falling into a higher tax bracket than necessary.
It is important to seek professional retirement planning advice during accumulation years to ensure retirement funds are allocated strategically. Without forward-looking planning it is easy to find yourself in a situation where all retirement funds are positioned in such a way that subjects them to ordinary income tax.
- Working longer than you want to.
It is almost impossible to make up for lost time when it comes to retirement planning. An examined retirement plan will ensure that the day-to-day decisions you make are in accordance with your long-term goals, and that your funds are working efficiently for you.
- A lack of protection.
It can be easy to overlook estate planning when considering how to plan for your retirement. In addition to protecting your family, life insurance can be utilized as a retirement tool. Without seeking professional retirement planning advice you may miss out on an opportunity to utilize an investment strategy you didn’t know existed.
I hope this article has been helpful; however, advice without implementation has no value. Reading these articles as an academic exercise will not result in financial success, just as watching exercise videos won’t improve our muscle tone and endurance. We urge each of you to take advantage of the complimentary consultation offered at Park Place Financial to help make your financial life better. We enjoy helping clients look at their financial futures in an organized, tailored, and approachable way.