Television Interview: "Major Retirement Planning Mistakes"
The following transcript is from a recent television interview of Retirement Planning Financial Advisor, Martin A. Smith, President of Wealthcare Financial Group, Inc. on ABC/Station WJLA, News Channel 8.
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MAJOR RETIREMENT PLANNING MISTAKES
Opening: I’d like to welcome Martin A. Smith, President and Retirement Planning Financial Advisor with Wealthcare Financial Group, Inc. who is talking with us about the Major Retirement Planning Mistakes that so many people make.
Q: There has been so much written about financial mistakes hurting corporations and small businesses, and charities … but there are some classic mistakes that plague retirees, right? What are some of the major mistakes being made by people who are retired, or is planning to retire?
Martin A. Smith
A: Most of what I have witnessed as a financial advisor who specializes in retirement planning are errors in judgment. It’s a little bit of everything, from ignorance, perhaps fate, and yes, some are from bad decisions. Regardless of how they happen, all retirees need to be aware of them.
Q: Wouldn’t you have a have a remarkable amount of money to remain comfortably retired for 30 or 40 years? What are some of the major mistakes being made by retirees and what tips do you have that could help them avoid these mistakes and have a secure retirement?
Martin A. Smith
1. Leaving Work Too Early. People are desperate for retirement income, but leaving work and claiming Social Security benefits at the first opportunity can be a mistake. The full retirement age for most baby boomers is 66. With every year you don’t take Social Security, your Social Security benefits grow about 85%. So if you wait until full retirement age to apply for benefits, that’ll boost your retirement income.
2. Abandoning Growth Investing Too Early. People who are retired shouldn’t stop investing in equities, which are stock based mutual funds and exchange traded funds. Keep a foot in a very diversified portfolio! It doesn’t have to be aggressive. You goal is maintaining purchasing power. Therefore, you need to outpace the rate of inflation. However, trying to outperform the S&P 500 Index could place retirees in a higher risk category, so don’t get caught up emotionally with the people who tell you that you have to outperform the S&P 500. Generally speaking, the older you get the more cautious (i.e. “risk averse”) you want to invest. But accepting some risk in exchange for the possibility of achieving a greater return does have merit.
Q: Some People are retiring with debt. Considerable debt! Many of them simply can’t avoid it. How do they cope with this?
Martin A. Smith
3. By not adding NEW debt! If it’s mortgage debt, at least you’re putting that toward a home you presumably enjoy living in and the property has the potential for appreciation and offers tax benefits. You do want to try to avoid retiring with major debt, but there are some people who will always have debt. Doctors, for example, Small Business owners. The important thing is, you can’t let that defeat your efforts to save! You can build wealth and manage debt at the same time.
Now, retiring with major bad debt is a mistake, like a major auto loan, for example. Most people would call that “bad debt.” And even though college debt is considered as “good debt”, I believe that putting college costs ahead of retirement costs is a mistake. Websites and Apps like www.scholly.com can help students find scholarships and grants. Nobody’s offering retirees financial aid. There are no retirement scholarships. No retirement grants. Your children have their whole financial lives ahead of them. So, try to refrain from touching your home equity or your IRA to pay college expenses.
Q: Most people are concerned about outliving their money because they don’t want to become dependent on welfare, or being a burden to their kids. What if you have adequate retirement savings, how do you make it last?
Martin A. Smith
4. Withdraw it reasonably. A well-to-do couple with plenty of retirement savings and income may decide to “live it up” in the first phase of retirement: travel the world, spend lavishly, give large gifts each year to family. The mistake that happens is that they withdraw too much. When you suddenly have more free time, you have an inclination to make the most of it, and have a few adventures, and that’s only natural. The key there is making sure those adventures don’t bankrupt you or do injury to your long-term retirement strategy.
There is an old guideline that dates from the 1980’s and it’s still relevant. IT’s called the “4 percent rule.” The idea is that you withdraw 4 percent of your retirement savings annually, adjusted for inflation. In other words, it becomes slightly more than 4 percent in year two, then slightly more than that in year three, and so on. It’s not a hard fast rule, but a lot of retirement advisors think it’s kind of a sweet spot, a level at which your withdrawals can be replaced by portfolio gains in the early years of retirement. What’s risky is to withdraw 7 or 8 percent. That could work for a year or two, but stocks don’t always go up 10 percent a year, that’s a myth. If you over withdraw you may not make it back in some years.
Q: A lot of people retire without any particular plan. What should they consider as far as “Retirement Financial Planning” is concerned?
Martin A. Smith
5. Get a Retiring Financial Plan ASAP! Each year you should be benchmarking your progress during retirement or toward retirement against the factors that can make your retirement less enjoyable or secure, such as debt, rising inflation, increasing medical care expenses, the absence of an estate plan, inadequate life insurance and long term care. We offer a complimentary retirement financial plan for free, just get in touch with us via our website at: www.martinasmith.com.
Retiring without a plan – or an investment strategy – is maybe the biggest mistake of all. When you do that, you risk leaving things up to fate too much. Too many people do that unfortunately. An unplanned retirement can invite terrible financial surprises with horrible consequences. The good news is, you can plan to try and avoid them. As you approach retirement age, take a little time to go over your strategy.
Martin A. Smith is a Retirement Planning Financial Advisor, and the President of Wealthcare Financial Group, Inc. a Retirement Planning and Investment Management Firm. He can be reached for additional comment at: (240) 482-3752 | email@example.com www.wcfingroup.com