How to Avoid 5 Common Retirement Income Mistakes
Written by Brian Carlton
Here is a quick guide of the five most common mistakes many investors make while planning for retirement. In order to make the most of your assets, make sure you don’t fall into any of these traps:
1. Keep your portfolio diversified. You will need the income.
Don’t assume that you can live off the interest and dividends from your assets alone. You will make yourself vulnerable to the effects of inflation. Do invest in a well-diversified portfolio that is positioned to beat inflation and taxes over the years. (This will allow you to maintain your standard of living.)
2. Avoid annuities and get the most out of Social Security.
Don’t be talked into buying an annuity from an insurance company. This is usually an expensive proposition. Do try to maximize your “government annuity” – meaning your Social Security retirement benefits. Wait to claim your benefit until your Full Retirement Age or even beyond to age 70. Waiting will give you an inflation adjusted monthly check that you can depend on. Plus, if you have the higher benefit between you and your spouse, your spouse will receive your higher benefit at your death.
3. Plan for the long haul.
Don’t assume you will live a short time in retirement. Our longevity is not based solely on genetics. We are not our parents. You may be retired for quite a long time – maybe 30 years – so make your plans accordingly.
4. Know how much you can afford to spend each year.
Don’t assume you can withdraw 10% or more of your investments each year to live on. The appropriate withdrawal rate for a diversified portfolio is closer to 4 or 5%. If you want your investments to last longer than you do, pay attention to those percentages. Withdrawing too much money in the beginning of your retirement can have serious consequences if there’s an early market downturn.
5. Educate yourself.
Don’t expect your retirement planning to be easy. Questions like: How much to withdraw for monthly income? How long will my assets last? What accounts do I draw from first? How do I deal with required minimum distributions? And what about long-term health care? Do your homework and get good, solid objective advice. This will benefit you , and not some salesman masquerading as a financial advisor (or planner).