There are many pitfalls that may negatively affect and ultimately derail your retirement, and knowing
about them is half the battle.
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The first one is having the same philosophy and mindset in retirement that you did in your working
years. When you’re working, you’re getting a paycheck, but once you get the last paycheck you’re ever
going to get, you have to look at things differently. Now you’ve got an extra 40-50 hours per week, and
unless you spend that time rocking on the front porch, you’re probably going to be doing something that
is costing money. It’s a matter of determining what it is you’re going to do now that the last paycheck
has stopped. You still have the electric bill and you still have a light bill. And now there’s two other bills
that are piling up.
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The first thing I suggest to new retirees is to decompress by taking the longest vacation you’ve ever
taken in your life because you need an opportunity to reset your routine. I like to tell people to “go
climb a tree” like you did when you were a kid. In a tree there is no one to bother you – you can just sit
there and think about whatever you want to. You need to do the same thing when you retire to decide
how you’re going to spend the rest of your life.
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The second is not having enough savings, and this is one of the saddest mistakes I see. Imagine that
you’ve been enjoying your lifestyle when you were making $100,000 per year, and now you retire and
you’ve only saved $50,000. That’s not going to give you the lifestyle to live out your hopes and dreams.
You may need to work an extra three years or take up a part-time job for a few years. Proactively
planning for the income you need and want in retirement is a crutial step.
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Third mistake is taking your income from a fluctuating account. Remember 2008? A lot of people had
all of their assets invested in the market, so when the market fell by 50%, their life was never going to
be the same because they’re having to live on half of what they thought they were going to have for the
rest of your life. Without reason, the biggest reason I see people fail in retirement is that they run out
of money before they run out of life. Moving into retirement, expect to take money from somewhere
else that’s giving you a decent return.
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The number four deadly mistake that people make before they retire is taking too much risk. Certainly we’re all familiar with the risk of the stock market, but there are several other risks to consider to sidestep. Other risks include interest rates, credit ratings, and inflation. Tools need to be in place to stay ahead of these risks. You have two choices – you can plan for it, or you can ignore it. But whatever that risk or occurrence it is, it’s going to happen whether you plan for it or not. If you look at your options and see what you can do differently, you’re 90 percent there.
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Next is that you could quite possibly could be in a different tax bracket when you retire. But if you get
creative with the income you need, you can take control of the amount of taxes you need to pay. Let’s
say you still need $100,000 per year to live on, but instead of taking all of that as taxable income, what if
you take $50,000 from your IRA and $50,000 from your savings account? You’ve still got your $100,000
income, but as far as the IRS is concerned, you only took $50,000 of taxable income. Most people have
never done tax planning to effectively reduce the amount they legally owe, and yet there are several
strategies that can prevent you from paying taxes unnecessarily.
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Not planning to pay for medical costs is the number six peril of retirement. Medical costs have been
rising dramatically for the last several years and will continue to evolve. Even events that don’t appear
particularly devasting could be devastating from a financial perspective. Let’s say you fall and have to go to the hospital. Maybe they run extra tests and keep you longer because you take longer to heal. These expenses can add up and quickly eat away at your savings. Consider whether you want to continue working to continue your employer-paid medical coverage to age 65. However, as long as you have a written plan to succeed that builds in a cost for medical, there’s no reason you can’t pull the trigger and start living the life you’ve always dreamed of.
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So the final mistake is not having a plan. A plan is knowing exactly what you can do and what is
available to you. Everything can be resolved by having a written plan. No one would ever jump in the
car and drive across country without having some kind of map or something to guide them, and yet
people walk into retirement having spent less time planning for retirement than they did planning their
last vacation. I like to recommend to people that they follow Stephen Covey’s number two habit of
highly effective people: Begin with the end in mind. If you know what the end goal is, you know what
the ultimate goal is.
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A plan is not something you simply have in your head. You need to have a written plan that actually
shows you how much money you can spend every month of every year for the rest of your life and not
run out of money before you die. With some proactive planning ideally 5-10 years before retirement,
you can walk out the door on your last day with confidence knowing you can enjoy the life you’ve
always envisioned.
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