Approaching Retirement & Not Working with an Advisor? Don’t Make Make these Common
Mistakes
Many people have thought about meeting with a financial advisor and have questioned whether
or not they need one in this time of their lives. My initial reaction is nearly always, “Yes, you do!”
I think that essentially everyone can benefit from working with an advisor, regardless of the
stage of life you are in. I work with primarily retirees so what’s something I see quite a bit?
Someone has just retired and come in to meet with myself and instantly I see some missed
opportunities! If only we could go back in time, but unfortunately that’s not an option. But you
may still have some time before retirement. If you are approaching retirement, here are four of
the most commonly missed opportunities I see from new retirees that hopefully you can learn
from.
1. Not understanding your Social Security earnings history. I would encourage you if you
have not yet to go on and create your social security online account. This will allow you
to see both a current estimate of what your benefit will be but it will also show you your
full earnings history. Your earnings history matters because you want to ensure that you
have at least 35 years of earnings. It may not be the end of the world if you don’t
(common with stay at home spouses), but if you are close to 35 years, it may have quite
an impact on your benefit should you reach it. The number 35 is important because the
formula used to calculate your social security benefit takes the top 35 years of your
working career. If you have a zero in there, it can pull down your average much more
than just a low earnings year would. If you are close, we can sit down, run some
calculations and discuss if working a bit longer may or may not be worth it for you and
your situation.
2. Not maximizing catch up contributions. Many people are not aware of, or at least do not
take advantage of, their catch up contributions. Catch up contributions are allowed into
your retirement accounts once you reach age 50. They differ between IRAs, 401Ks,
403Bs, 457s, etc. and they change nearly every year based on inflation but they can be
crucial to getting that last bit into your retirement accounts. If you have some disposable
income that is just getting sent to a savings account at your bank, definitely consider
instead utilizing the catch up contributions. Discuss either with myself or with another
professional you what account(s) you have and the rules regarding them.
3. Not having an appropriate asset allocation in your investments. This is a very common
one, perhaps the one I see the most. And it probably causes more loss or rather, missed
monetary gain, than anything else. It’s extremely common to hear, “I’m approaching
retirement, I need to be more conservative.” Any while yes, to an extent that is true (a 55
year old and 25 year old should have different allocations), but it has become something
that too many people get fixated on and ends up causing more harm than good in the
long run. People either use a target date fund or a large allocation to fixed income, or
worse yet, cash! Many times investors don’t even know why or how they got to that
allocation. Retirement is just the beginning of a new chapter, not the end of your
investing career. Many people will have a 20-30 year retirement and you need to have
your investments positioned to grow enough during that time.
4. Income planning. Again, another extremely common issue I see. People are about to
retire or have already retired, and have not built out an income plan. Income planning is
all about optimization and there’s many different levers we can pull with income. I work
with a lot of teachers and state employees, so they tend to have more moving pieces
than the average retiree. There are many decisions to be made regarding pensions and
which beneficiary selection to make, when to turn on social security, which accounts
should to pull from, to work part time or not & the list goes on. By not having a formalized
plan, you may be setting yourself up to pay more taxes than need be and in turn, hurting
your overall long term wealth. The way you take income will have massive implications
on the probability of you having a flourishing retirement.
While these are some of the main issues I see, they are definitely not the only ones. What they
all point to is having the need for optimization, which can increase your chances to have a long
& successful retirement. By allowing a professional to walk alongside you, you greatly increase
your chances of having short term wins. Those small wins can make massive impacts in the
long run. Remember, small hinges swing big doors!