5 Retirement Traps to Avoid

by | Jan 28, 2022 | Blog

No matter where you are starting from, the road to retirement will include twists and turns. Everyone’s path to retirement is different. But in our experience, we’ve come across a few common traps that folks fall into when thinking about and planning for retirement.

Retirement Trap #1: Market Volatility is Inevitable

Interest rates, global developments, and investor sentiment will always be changing. In uncertain times, it can be tempting to react out of fear.

We can’t control the markets. Plain and simple.

But what we can control is aligning your risk tolerance and time horizon, while investing based on the goals you have for your money. A balanced portfolio that reflects your goals, time horizon and risk tolerance can help you feel at ease during rocky markets.

The biggest risk to retirees is not investing in the stock market. It’s NOT investing in the stock market.

Don’t let the latest market volatility, and corresponding doom and gloom headlines stop you from investing for your future.

Retirement Trap #2: Inflation is to be Expected

Inflation is the upward movement in prices. Over your lifetime prices have risen. This fact eats away at the purchasing power of a dollar. To put it simply, a dollar cannot buy as much as it did when you were born.

This erosion of purchasing power is why investing in the stock market is a crucial pillar of retirement planning. Investing in the stock market is a proven way to keep up with inflation over the long term.

We’ve talked about the recent rise in inflation here, here and here.

Retirement Trap #3: Not Planning for Healthcare Costs

Healthcare is likely to be one of the biggest costs during your later years. An average healthy couple aged 65 can expect to spend $208,000 in lifetime out-of-pocket healthcare expenses over the course of their retirement. That’s even with supplemental coverage like Medicare Part D, Medigap and dental insurance.

These averages tend to get skewed towards the late stages of a financial plan due to the costs of extended care coverage.

It is never fun to think about your health deteriorating, but having a plan in place for how you will cover these costs, if they do arise, is paramount.

We wrote more about healthcare coverage in retirement here!

Retirement Trap #4: Not Planning for Long Enough

With that being said about healthcare costs, the other side of that coin is the fact that life expectancies are on the rise. Your retirement may be a longer season of your life than you anticipate.

The average male is expected to live to 87 years old, while the average female is expected to live to 89 years old. This up 25% over the last 100 years.

Living longer requires more savings. This is one of the most challenging retirement planning issues. Nobody wants to run out of money in the end. But, also, nobody knows when the end will be.

As a rule of thumb, all of our financial plans project out at least into the client’s 90’s. We tend to err on the side of caution and would rather end up with more money than necessary at the end. But everyone has their preferences, so each plan is different!

Retirement Trap #5: Unrealistic Expectations

Just because retirement might mean the end of your working years does not mean the changes stop there. Assuming that unexpected events in your life (and corresponding changes to your financial plan) won’t happen during retirement is unrealistic.

It’s important to understand that beforehand so you can better prepare mentally and financially to live out some of the best years of your life.

We say it a lot, but I will say it again, financial planning is a process, not a one time event. Thinking that you will make a plan and stick to it for 30+ years is not usually how this goes.

We help our clients plan for and change through their retirement years. And folks that avoid these 5 retirement traps are definitely headed on the right path!

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