Don't Make These Mistakes
Thinking about retirement should come with the first paycheck, but Stan wasn’t considering the day he’d no longer have income. He didn’t think ahead. Will your pension (if you’re lucky enough to earn one) and Social Security cover your living expenses? Your company provides pension statements and the government sends a Social Security statement each year. You should be able to determine whether the funds available by the time you retire are enough to hold you over for several decades.
Chances are that it’s not enough. Perhaps this is enough of an incentive to get people to start thinking about how they’re going support their expenses. Sure, there’s always a risk that you won’t live long enough to retirement, and money exists to be used to enjoy the time you do have alive on the planet, but you should still think about what will happen in the not-so-remote chance you won’t get hit by a bus before you leave the workforce.
Stan thought he could handle everything. While he didn’t see the need for a financial planner, he visited professionals for medical attention. He regrets not seeing a financial professional. Don’t fly solo, get help from people who are trained to help you. The general feeling is that fee-only financial planners are where it’s at. They are likely to look out for your interest while other financial advisors want to line their own pocketbooks.
Like 80% of the world, Stan believed he was smarter than average. He thought he could outguess the market and time trades in a way that would provide the most benefit. He ended up selling a certain fund at an extreme low point — he chickened out — and missed a sizable gain over the next few years. If he were to do it again (wouldn’t we all like to change decisions?) he would buy and hold and keep his emotions home.
Where do I stand and am I making these mistakes? I am thinking about my retirement, but I wasn’t when I first entered the workforce 7 years ago. I was working at a non-profit organization for little pay and no benefits — certainly no retirement program. I was spending more than I earned just to pay rent and commute to the job. Although I’d like to be working in non-profit, I couldn’t continue in that direction. My 401(k) is now doing fine around $25,000, although it’s taken a hit due to the stock market lately.
I have no financial planner. Right now, I don’t have enough assets for it to be worth it, but when I start a family, this will be a top order of business. On the positive side, I don’t try to time the market. My money is all in index funds (except for about $50 invested through ShareBuilder) and I plan on letting the funds sit for a long time.
These are three additional actions or attitudes you should not emulate:
Our professional, Stan, may have shortchanged his wife. Regarding his pension, he was required to choose between a larger monthly payout which would have lasted until his death or a lesser monthly payment to last after his death to help his wife pay for expenses after he is gone. He chose the maximum monthly payment.
Now that he has come to his senses, his calculations “showed that if Sara were widowed, her monthly income from Social Security plus her own company pension would barely cover her monthly expenses. She would need income from our savings to make ends meet.” He regrets his choice.
Stan was not aware of “givebacks.” If you’re receiving Social Security benefits, and you’re between the ages of 62 and 65 (soon to be 67), you lose $1 of benefit for every $2 you earn over $12,480. This should be taken into consideration when planning your retirement date if you’ll be counting on benefits from the Social Security system.
This is as good as a time as any to point out that most people look at Social Security as a retirement plan. It’s actually government-sponsored wealth distribution, so don’t ever expect to “get back what you put in.” What you put in is mostly not for you.
Hey, big spender. Stan was loose in the wallet. He says credit cards “put you in a budgetary straitjacket that erodes your financial flexibility and uses up the cash you may need for unexpected health or other expenses,” if you’re paying interest and not reducing the balance to zero each month. Try to find ways to cut back on the spending as you approach retirement (or throughout your entire salary-earning career), and you’ll have more for spending later on.
Stan wasn’t a complete retirement-planning dunce, and that’s good to know considering he is a financial expert according to his byline. The two things he did correctly in planning his own retirement — were there really only two things? — were joining a 401(k) and planning for his Grand Exit (wills, funerals, etc.).