018: 5 Common Ways People Lose Their Retirement

TRR 5 common ways people lose their retirement

5 Common Ways People Lose Their Retirement

Today we’re talking about pitfalls that too many people fall into during retirement, which result in them losing money and/or fulfillment. You can use this as a checklist to see if you’re on course for a retirement that lights you up – and if you’re not on course, today is the day to right the ship.

FIVE WAYS YOU CAN LOSE YOUR RETIREMENT

No Retirement Strategy

Some people are working one day and retired the next, with no plan or preparation. You need a transition strategy if you want to get the most out of your retirement, both in fulfillment and income.

If you don’t have a transition strategy, you may end up losing a lot of unnecessary money in the market, paying fees you don’t realize exist, facing avoidable tax consequences, leaving money left on the table with Social Security, or just not knowing what to do with your days when you don’t have a job.

Borrowing From Your Retirement Plan

23 percent of people, over the course of their working life, borrow money from their retirement plan. This should be an absolute last resort – only do this if it’s the only way to avoid foreclosure or bankruptcy.

While that money is borrowed, it’s not doing the biggest benefit you have during your accumulation years: you’re missing out on the compound interest.

On top of that, when we pay back our loans, we’re going to pay it back with after-tax dollars. And then when we pull that money out again later, it’ll be taxed again. So we’re not only losing the compound interest by borrowing against our retirement accounts, we’re also being double taxed, and oftentimes not even realizing it.

Failing to Take the Required Minimum Distributions

When you turn 70-and-a-half, you are required to take roughly 3.6 percent out of your IRA, 401k, or other qualified accounts.

And if you do not take the Required Minimum Distribution out, even if you just forget or don’t know, it’s a 50 percent penalty – the harshest penalty there is on these qualified retirement accounts.

You also have to be aware of how this money will affect your income plan. If you have a large IRA, it might actually kick you up into the next tax bracket, which could have dramatic implications on your net income.

When you’re doing the transition planning that we talked about earlier, you should be accounting for these RMDs. What’s the money we’re going to have to take, when are we going to have to take it, how’s it going to affect our income plan, and how’s it going to affect the tax situation?

Investing All of Your Eggs in One Basket

Too often, I’ll work with people who only have one kind of asset accumulating value for retirement, usually a 401k or other retirement account. You need to diversify your investments and your accumulation strategy because having everything in one basket leaves you vulnerable when something in your life or the market changes.

There’s no rule of thumb – we have to get clarity around your planned income and expenses in retirement, and your goals in retirement, before we can make an investment plan.

When we have clarity around those items, then we can come up with the right allocation of your assets to address liquidity, income, growth, and the other goals you have for retirement.

Not asking for help

People often run into problems in retirement, emotionally and financially, when they try to do all of the planning and transitioning alone.

Research and surveys have shown over and over again that people actually perform better when they have a team, and your team may include a financial adviser, a retirement coach, an accountant, a health insurance professional, and/or something else entirely.

When you assemble a team and ask for help, they can help you avoid most of these pitfalls.

Resources:

“5 Common Ways People Lose Their Retirement

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About Beau Henderson

Beau Henderson is a financial advisor, author, coach, radio personality, and CEO of RichLife Advisors. He has helped over 3,000 clients to not just improve their relationship with money, but to live the life of their dreams.

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