There’s no such thing as one-size-fits-all retirement planning, and planning the perfect retirement may also be elusive.
Rather than trying to hit home runs with retirement planning, investors will be well served by emphasizing fundamentals and aiming for singles and doubles. One way for investors to do that is to get out of their own way and not commit common retirement mistakes.
One of the most common retirement errors is selling in the middle of or at the bottom of bear markets. Rather than hitting the panic button in bear markets, retirees may do well to adjust allocations. That way, they can still have exposure and capital with which to benefit when markets inevitably rebound.
“Consider moving a portion of your assets into investments that are more likely to weather market disruptions. We suggest that retirees keep a portion of their retirement portfolio in cash or cash alternatives and use that to help fund expenses,” says Rob Williams of Charles Schwab. “Then, consider allocating some to less-volatile investments, such as high-quality short-term bonds or short-term bond funds. This can help reduce the risk in a downturn and can be especially important early in retirement.”
Another oft-repeated mistake many retirees make is claiming Social Security too early. Workers become eligible for that benefit at 62 years old, but by exercising some patience, their Social Security checks will be significantly higher.
“Individuals who collect Social Security beginning at age 62 receive 25% less in monthly benefits than if they had waited until full retirement age (FRA)—and roughly 43% less than if they had waited until age 70,” adds Williams. “Waiting to collect can also help extend the life of your portfolio. True, you’ll have to rely on your savings alone if you retire several years before you start collecting Social Security, but the increased income that comes with deferral—which is guaranteed for as long as you live—can help preserve your portfolio later.”
Another mistake is a clunky distribution strategy. Retirees can avoid that by factoring income, expenses, life expectancy, and other factors together, not exclusively.
“Keep a close eye on taxes and timing—especially once you reach age 72 (70½ if you turned 70½ in 2019 or earlier). That’s when the required minimum distributions (RMDs) the IRS obliges you to take from your 401(k)s and SEP, SIMPLE, and traditional Individual Retirement Accounts (IRAs) kick in,” advises Williams.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.