Most of us don't have the time or the perspective to check whether our
retirement plan going to stand the test of time. Here are some common
mistakes that people make and it may be prudent for you to check the
numbers on these to make sure you are on the right track.
1. Not having
Long Term Care insurance: To many peoples' surprise, this is mistake
number one. The reason it is so is that this one mistake can wipe out your
entire nest egg in one fell swoop regardless of how well you have planned
every other aspect of your retirement plan. Even faster if both you and
your spouse were to need care in any given year. It's literally like
building a castle out of sand. For the money, this one insurance product
buys more of not just financial but mental security than any other
investment. Of course, there are situations when this is not true,
depending on your income and net worth, so check with your financial
professional.
2. Being too conservative: it is easy to understand why a lot of us
prefer to be conservative in these brutal markets but this is also the
biggest mistake we can make unless we have enough money to cover all our
income needs far into the future, counting for inflation. Our biggest task
is keeping up with inflation and we cannot do the job adequately unless we
keep a healthy slug of our portfolio in stocks.
3. Not counting social security as a bond investment in asset
allocation: when you retire, you will get a fixed income from social
security just like a CD or a bond. Same thing with a pension. When you
allocate your assets, count these sources of income as "bonds" or "fixed
income".
4. You need 70 percent of your current income for retirement: this is
almost always wrong because most retirees spend more than they did when
they were working, at least in the first few years of retirement. You need
to look closely at your monthly expenses after retirement but it makes a
lot more sense to aim at replacing your entire pre-retirement income if
not more. Do you care if your overshoot your goals?
5. Assume you will be in a lower tax bracket after retirement: This may
hit you with higher tax bills than you expected when you pay tax on your
IRA and 401(k) withdrawals. You need to look at your expected tax bracket
every year, specially if you are near the mandatory distribution age of 70
1/2.
