A funny thing happened to the Baby Boomers on the way to getting ready to retire- most of them weren’t prepared. In fact, most Baby Boomers have nowhere near the assets and income they need to sustain their pre-working lifestyle in retirement. It’s going to be a scary time for many people. You may feel like you are a rock star- you may be a millionaire! You would assume that would do it for you, but if you look closely, you may not be in as good a shape as you think you are to maintain the lifestyle you have become accustomed to. Here are the biggest mistakes we’ve seen some incredibly smart people make:
They Don’t Have Enough.
We have worked with many clients who were deep into a six figure or even a seven-figure salary in their working years. They got used to spending as much in a month as many people do in a year. But that high income wasn’t consistent all their lives- in fact, usually it comes much later in life for a decade or so. In earlier years, they may have been on a tight budget with kids and all the trappings of a professional career. When their income went up, so did their spending and they didn’t know or weren’t able to put away enough in a short period of time to make their nest egg cover a limitless lifestyle they may have lived before they retired. The key here is to identify what is valued as an expense and how to make it work with what you have. After the initial shock, it can sometimes take a couple of years to settle into limits on spending, but it can usually happen with behavioral control. People who can’t live within their means or don’t know what their means can comfortably provide, will more than likely be out of money sooner than they hope.
They Have No Investment Strategy.
Picking random investments is not a strategy. For retirees, they need a plan around asset allocation (how much in stocks, bonds, cash, etc.), income planning, tax, and of course the cost of all of it. We meet people all the time who don’t know how much they pay in fees. We know people who can’t tell us what they own. We see people who don’t know how they are going to pull money out of their portfolios. We’ve met people who don’t know the difference between a tax-deferred account, a Roth account or an individual account and how it affects them while they are working and how it will affect them in retirement. Distribution in retirement can be simple or complex, but it has to be thought out. It has layers. Those layers affect each other. And chances are, the more money a client has, the more layers there are. All of our clients have written investment strategy. And while not all of our clients can tell you without reading it exactly what is what, we review it to remind them and use it to stay on course or redirect the ship.
They Don’t Have Enough Liquidity. Or They Have Too Much Liquidity.
Alright, we admit this is more of an art form than a science, but we see a lot of mistakes here as retirees often have either way too little cash or far too much given their spending, investment policy and risk management tools. This should be discussed and monitored (in writing) on a regular basis throughout the year to make sure that anything that comes up- be it an uncovered housing emergency to an uncovered medical emergency (to that second home you can afford because you have been living within your means) can be taken care of.
They Have No Idea How Much Medical Care Will Be.
Anyone think medical care is getting cheaper? Anyone? Nope. And we could be headed for some real shortages for care as the Boomers age. For all of you supply and demand folks out there, you know that when demand goes up and supply goes down, prices go up. And, to top all of that off, Boomers are predicted to live far longer than previous generations and not necessarily without needing expensive care. A good plan has risk management tools, but hopefully there are some back up plans in place as well.
There Is No Social Security Strategy.
Getting to that age where you can now collect a Social Security benefit is good stuff. It’s WAY better than when you got your AARP card and the discounts that came with that (although one could argue it’s because they send those out to people who are way too young to be considered seniors). Because it feels a little like “free money” and because of all of the political posturing out there, many are tempted to cash that check asap. Don’t. If you are married, widowed, divorced there are all kinds of things you need to know before you go get that check. If you have never been married, you still probably want to wait. Delaying taking the check can increase benefits by sometimes up to 32% more for life! That’s some crazy return on patience. And while the good people at the Social Security office are kind, they don’t have time to develop a “strategy” with you. (By the way, if you are one of the adventurous sorts who still has minor children AFTER you qualify for this benefit, there are special opportunities for you and your kids, too.)
They Don’t Do Estate Planning.
Estate Planning is not just for death. It’s for living as well. Looking at everything you need and everything you have in the event of various combinations of incapacitation or death can make a huge difference for the person who needs extra care, the surviving or healthy spouse, and certainly your heirs. It can be the difference between your elder years being comfortable or stressed with bad health care and financial decisions. Getting old is challenging, but good planning can help it beat the alternative.
For all of these big mistakes, there are a ton of smaller technical ones that can add up, as well. Getting good help from a Fiduciary who wants to assist you in making good decisions can be invaluable at this stage of the game.