Today, we will dive into six of the most critical and common retirement planning mistakes we have seen in the last three decades.
There is nothing worse than realizing you’ve not saved enough money for your retirement. And if you’re not convinced, I have a fun exercise to make my point.
Some studies show that 40% of people’s sole retirement income is Social Security, and my peers and I believe it’s actually higher.
But whether it is or not, this equates to about $1600 to $1800 a month that you’re going to get from Social Security.
So, imagine what it would be like to live on that. I mean, for many of us, it’s hard to even fathom.
But let’s just assume that’s what the number is going to be for this exercise. Now, go out and find an apartment.
What can you afford? Maybe $900 a month? That would leave you $900 for utilities and food.
I’m not sure if that’s enough for essential expenses. Maybe the apartment is going to be $700, maybe even $600, if you could even find one at that price.
So, you can’t go out safely at night, and you can’t afford to eat healthy foods.
Then, go to the local Walmart and purchase some ramen noodles and tuna fish or anything cheap.
Try it out for three months and see what it’s like.
I guarantee you, you’re going to pause and even say, “Wait a minute.”
There is nothing fun about ending up broke. And today, you’re going to learn six of the most common retirement planning mistakes to avoid so you don’t have to worry about living broke and can instead secure a financial future you love.
Transcript: Wealth Inside and Out® Podcast – 6 Retirement Planning Mistakes You Need to Avoid.
Hi, my name is Annette Bau (bah oo), your host of the Wealth Inside and Out® Podcast. I’m a Certified Financial Planner™ and founder of The Millionaire Insider®.
For over 30 years, I have been advising and researching the top 1% of millionaires.
I am passionately obsessed with money, mindset, and the intersection of self-worth and net worth and how the two connect and allow us to live fulfilled and wealthy lives on our terms.
From Humble Beginnings…
Growing up in the Midwest, I had a dream. And, I began investing $25 a month 35 years ago, and today have a multimillion-dollar net worth.
I teach the tried-and-true principles that only someone with over three decades of experience advising millionaires would know.
This podcast is different – it’s about much more than money. We talk about mindset, success, money blocks, worth barometer, and all aspects of money and topics from practical manifestation, along with real-world how-to, and everything in between, with the goal of making your journey easier and more fun.
Think of this as coffee, actually, matcha tea, learning real-world, common sense, money, and life advice from a BFF that you can start applying today. If you want to create a financially free life you love, you are in the right place, my friend.
This is the Wealth Inside and Out® Podcast.
Today, in 6 Retirement Planning Mistakes You Need to Avoid, you’re going to learn:
- The biggest retirement planning mistakes that people make
- How to avoid Social Security mistakes as well as when to start taking your benefit
- Free money you may not get and much more.
Free Retirement Plan Checklist Resource
You can go to https://themillionaireinsider.com/rpc to access this resource. You’re going to love it. It provides you with an overview of the actions you need to take so you can avoid the biggest retirement planning mistakes people make. It will help you stop worrying about running out of money and also ensure that you can live your life and retirement on your terms.
We share insights in this free Retirement Plan Checklist resource that many people don’t even consider. So again, you can go to
One of the most common concerns women have is running out of money and becoming a bag lady. They fear not being able to afford their standard of living, or really even having enough money for the essentials. This guide is a great first step to help you create a plan so you can stop worrying. Again, https://themillionaireinsider.com/rpc. You’re going to love that resource.
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6 Retirement Planning Mistakes You Need to Avoid
Retirement is a very important milestone, and it requires careful planning to ensure your financial future is secure. Unfortunately, many individuals make common mistakes that can jeopardize their future, and by the time they figure it out, it’s often too late to change course.
Today, I’m going to share with you six common retirement planning mistakes, as well as insights you can implement so you can avoid them.
1. Running Out of Money
The first one, and probably the most important, in my opinion, is running out of money. Too many people do not have a contingency plan if they live longer than expected.
Avoiding Longevity Risk
I was listening to this couple talk about when they had to die. And if they didn’t die by then, they weren’t going to have enough income.
And I felt like I was getting hives. I was like, oh my gosh, that’s tragic.
Longevity risk refers to the financial risk associated with living longer than you expect. It’s the risk of running out of money, and in my opinion, it is the biggest retirement planning mistake you can make.
While it’s wonderful to think about living a long, healthy life, it requires money and oftentimes a lot of it.
So, you’ve got to factor living a long life into your plan.
The bottom line is, that longevity risk, which is what we’re talking about, essentially boils down to outliving your retirement savings and income sources.
So let’s take a more in-depth look at longevity risk and the mistakes to avoid it.
The first concern is just the risk of depleting your retirement savings. If you don’t have enough money saved, or you are taking too much money out of your retirement, you will end up with no money in it.
Not Factoring in Inflation
A major retirement mistake is not considering the purchasing power of your money, meaning that over time, it will erode as inflation increases. That means you can’t afford essentials. You can’t afford food, medical treatment, medications, or all the essential expenses you need money for. It’s not pretty.
How to Avoid Longevity Risk?
Start Saving Earlier.
The sooner you begin saving for retirement, the more time your nest egg has to compound interest and increase.
Set Realistic Goals
Goals about where you’re going to live, how much it’s going to cost, when you’re going to retire.
Diversify Your Assets and Investments
Avoid putting all of your eggs in one basket or taking too much risk. When you can, diversify your assets across various categories, like stocks, bonds, and real estate. It’s recommended that you spread out the risk. But sometimes I see people putting way too much money in one area, and it can be a problem.
Add in Guaranteed Income Sources
This is probably my best recommendation.
I love guaranteed income. Generally, it’s through an annuity that is issued by an insurance company.
If you buy the right type of annuity, it will provide you with a lifetime income option where you have guaranteed income for your life.
An annuity protects you against the risk of outliving your savings because you’re going to get that money every single month. It’s similar to a pension or Social Security, but in this case, an insurance company backs and guarantees the payments.
Some are guaranteed for a period of time i.e. a minimum of 20 years.
For example, let’s say you have monthly income from an annuity and you die within ten years, your heirs will get the other ten years of income upon your death.
Delay Social Security Benefits
Another option is to delay Social Security benefits. My recommendation here is that you delay the benefit if you can afford to and it makes sense. You need to look at the numbers, and you must look at your health. Those are two of the factors.
But assuming that your health is good, and you look at the numbers and you can afford to do it, delaying Social Security benefits until the maximum age is ideal and that number probably will change. Currently, it is 70, but it’s probably going to go up.
Always check with a qualified financial advisor or the Social Security department before making an election. Because this is such an important topic, I often join my clients when they meet with a Social Security representative.
Plan for Healthcare Costs Increasing
It’s amazing how many people don’t take that into account. Guys, it’s going to happen. Healthcare costs have like quadrupled and there’s no end in sight.
So, you need to factor that in and then regularly review and adjust your plan. It’s amazing. Some people set up a plan and then they never look at it.
That is a problem.
Consult a Qualified Financial Advisor
Make sure you’re looking at your strategy with a qualified financial advisor, hopefully, someone who is registered. This brings me to my next point, that you should have a financial advisor who has real-world experience. There are a lot of people giving investment and financial planning advice who are not registered.
That spells disaster. Recently, I heard about a money coach with three years of experience giving alternative investment planning advice. That could be problematic so pay attention to who you hire to support you.
I encourage you to make sure that whoever is providing you advice has the knowledge and the expertise to provide it.
Consider Working Longer or Getting a Part-Time Job
It’s amazing what working even one more year does to your retirement. And continuing to work, even if it’s part-time, can help supplement your retirement income.
A lot of older people were forced to stop working early because of COVID. So, you must always factor in that there are risks that could cause that plan to not work. And that’s why you want to have a contingency plan.
Make Lifestyle Adjustments
Be willing to make lifestyle adjustments. You must be prepared. For instance, you may have to downsize your home or move to a cheaper community.
Review what you can cut from nonessential expenses and explore more budget-friendly living arrangements. The key here is to do it before you have to. Meaning once it’s too late, oftentimes it’s just a problem. So, be aware of that.
2. Delaying Retirement Planning
It’s easy to postpone thinking about retirement, right? You’re young, retirement’s way off, or maybe you’re thinking your partner is handling it.
But the earlier you start saving, the more likely your retirement is going to have a secure financial future. Now, one of the things to remember is that most companies have an employer-sponsored retirement plan. Always fund your retirement at a minimum to the employer matching point.
That’s typically three or 6%. Now, my weight training coach was talking about wanting to get his affairs in order and we’re having a conversation.
Are you funding your 401K? No.
Does your employer match it? Yeah, I think it’s like 6%.
I’m like, that is money you’re just giving away.
So, he immediately set it up. That’s so important.
Loss of Compound Interest
One of the things that’s a problem when you don’t save is that you lose the opportunity for compound interest.
This is what happens when your money accumulates interest and then you’re earning interest on the principal and the interest. The accumulation of compound interest is huge, and over the years, it can be significant. So, be aware of that. You want to get all the money you can. Compound interest is an amazing vehicle that you get by saving early and continuing to save over the years. Missing the opportunity is another one of the top retirement planning mistakes people make.
If you wait too long to start saving, you’re not going to have enough money saved. And then what ends up happening is you start taking more risk than you should.
Taking a lot of risk, especially when you are older, can be devastating, and it is not recommended. So please don’t make that your solution.
How To Avoid Procrastinating and Instead Start Planning Your Retirement
Set Clear Goals
You want to have long-term retirement goals, and you want to have a vision, because a vision of what your future looks like and what you’re going to be able to do can really be a motivating factor to starting to create a plan.
Automate Your Savings
You want to automate your savings. Set up automatic contributions to retirement accounts like 401Ks, IRAs, or a Roth IRA.
This ensures that a portion of your income goes directly into your retirement savings before you have an opportunity to spend it.
Hire a Financial Advisor
Seek professional help from a registered financial advisor. Really, it’s a registered investment advisor, but somebody qualified to help you create a retirement plan that’s tailored to your goals and circumstances.
If you have money mindset issues, you may want to hire a money coach or a financial coach. And, if you need retirement planning, investment planning, or financial planning it is best to get advice from a registered financial advisor.
If you are ready to confirm your finances are in order and stop worrying about your financial future, check out The Wealth Academy at https://themillionaireinsider.com/twa for The Wealth Academy.
That’s going to provide you with a lot of insight into success mindset, money mindset, creating your spending plan, and generating more income, which is the key to securing a retirement you love.
3. Not Making a Spending Plan
Another major mistake is failing to budget or track your expenses.
Without a clear understanding of your financial situation, it is virtually impossible to determine how much you need to save for retirement. Out of all of the retirement planning mistakes, this one is critical. So, when you don’t have a spending plan, what ends up happening is you fail to track your expenses.
You often then don’t know what you’re spending or how much you have to save.
And, you don’t know what you need to do to get where you want to go.
To determine how much you need to save, you’ve got to know what your expenses are, so you know what you’re going to need to spend in retirement. Then you can figure out how much money you need to accumulate to get to that number.
Create a Spending Plan
So, how do you create a spending or budget plan?
The first thing you want to do is establish a monthly budget that outlines your income and expenses.
This includes discretionary spending such as dining out, entertainment, and travel, as well as a comprehensive view of your habits. Like what do you tend to spend money on? I was on TV a few years ago, and the host said, “Oh, my gosh, my issue is boots.”
She just loved boots. And I’m like, well, it’s not going to kill you if you buy a pair of boots.
She said, “No, I go and buy tons of boots.” Yes, that’s a problem.
Use a Budgeting App
You can also use budgeting tools.
There are many budgeting apps and tools available that can help you track expenses, stay on top of your finances, and regularly review your spending plan.
We use a really helpful app, but I got kind of sloppy. And the problem is because we have different properties and we have a lot going on, it’s hard for me to know what the numbers are. Like, somebody says, well, how much money are you spending a month on water? Well, it depends on which property.
But I’ve become a lot more aware of it. I do a lot of our accounting because I find that it forces me to be more present and pay more attention as compared to when I was delegating all of it.
When I was delegating my accounting, I was spending more time and wasn’t paying attention. So just be aware of that and do what you need to do to make sure you’re on top of it.
4. Not Planning for Higher Health Care Costs
One thing we know for sure is that healthcare expenses are going to increase. And this is a critical retirement planning mistake that many people make.
Not only is the cost of health care increasing, but so is medication. We must be aware of that because of the financial strain these expenses cause us. You need health care and medical care, and you can’t afford it.
Meaning, are you going to eat or are you going to buy your medicine? It is tragic to see these people who share that they have to choose between feeding their kids, feeding themselves, or getting their prescriptions. I mean, it is a problem.
Another issue is inflation.
As health care costs increase, we have less money for other expenses. It is a problem, and it causes major stress.
So, what can you do? The first thing you can do is investigate current healthcare costs in your area and research potential healthcare providers and insurance plans for retirees.
They’re more geared toward the medications you may likely need in retirement. So, make sure and investigate that.
Consider Purchasing a Long-term Care Insurance Policy
This can cover expenses and reduce the financial burden on your family. If you plan to purchase nursing home care or home health care policy, always, always use a qualified long-term care expert when you’re purchasing a policy.
Another option is to build a health care emergency fund so that you’ve got some extra funds set aside for unexpected medical expenses.
Remember to ask if they will give you a discount if you pay cash.
5. Relying Too Heavily on Social Security
Social Security may be a valuable source of retirement income. That said, it should never be your sole or primary source of income in retirement. Too many people rely on it, leaving them very financially vulnerable.
One of the issues when you rely too heavily on Social Security is an uncertain future. Things are changing. There’s no longer going to be a workforce that’s going to fund it for people as they get older.
One thing that most people would agree on is that while the benefit may not completely disappear, it’s very likely that the amounts and eligibility are going to change. So just be aware of that.
On the other hand, when you have other sources of revenue, it’s ideal. As I mentioned at the beginning, studies show that for 40% of Americans, their sole retirement income is Social Security. This payment equates to about $1600 to $1800 a month. My peers and I think it’s higher.
It’s amazing how many people I hear of that rely solely on Social Security. A lot of them are financial advisors. It’s just horrifying. A lot of them are financial advisors. It’s just horrifying.
What Can You Do To Avoid Retirement Planning Mistakes?
1. Diversify your income sources.
As I mentioned earlier, always start saving early.
2. Take advantage of employer-sponsored retirement accounts and always put money in your investment account.
One of the biggest retirement planning mistakes is not investing in an employer-matching retirement.
3. Start Investing Early
Ideally, you want to use a registered investment advisor. You also want to use a registered investment advisor when getting investment advice.
4. Delay Social Security until full retirement age
This is so important. So, instead of taking your Social Security benefit at age 62 or the earliest time, you can wait until you max out the benefit. Currently, it’s 70, but it’s probably going to go up. So, just pay attention to that.
5. Consult a registered financial advisor
A financial planner can help you create a diversified income strategy that aligns with your goals. As a result, you reduce the odds of making retirement planning mistakes.
6. Manage Investment Risk
Oh my gosh, I’m seeing this more and more often.
What’s crazy is that people either don’t take enough risk, or they take too much. It’s frightening.
When we ignore investment risk, what ends up happening is we may have inadequate returns because we have investments that are in too low of interest-bearing accounts.
Right now, because inflation is high, savings accounts are higher than normal. All right? That said, for years, it’s been very, very low.
So, we need to be aware of it. We’ve got the risk of not earning enough money and even at, say, 3%, earning that may not be enough for you to accumulate the amount of money you need. So, you must take that into account when creating your plan.
And then, some ignore volatility by taking too much risk. It’s amazing how we’ve been in an up market for literally 14 years. There are so many people who are investing or even giving advice that has never been through a down market. Many don’t even know how to plan for a bear market which does happen.
Too much risk can be devastating in the real estate, stock, and even bond market. So just be aware of that.
Tips to Avoid Investment Risk
Diversify your Portfolio
Don’t put all your eggs in one basket. You might have some stock, some real estate, some cash, and some fixed-income annuities. Regardless of the mix make sure your assets are diversified.
Understand Your Risk Tolerance
And then you’ve got to understand your risk tolerance. One of the things I always find fascinating is that the best time to find a person’s risk tolerance is when the market drops. When the market is rising, everyone is a growth or aggressive growth investor. When the market’s going up, everything is fine. Then when it drops, many people panic.
It’s like, wait a minute, your score came back that you were aggressive growth.
Really? You’re like a moderate conservative. I mean, it’s fascinating. So be aware of that.
Regularly Review and Adjust
And then, you’ve got to regularly review and adjust your portfolio to ensure it’s in line with what you need to do, your goals, and your risk tolerance.
Conclusion – 6 Retirement Planning Mistakes You Need to Avoid
Avoiding these common mistakes is a huge first step. Creating a plan focused on achieving a secure and comfortable retirement is critical.
So, let’s review the retirement planning mistakes:
1. Running Out of Money
To reduce the risk, start planning early. Consider purchasing an annuity with a guaranteed income stream, especially as you get older.
2. Delayed Planning for Retirement
You need to create a plan and set goals.
3. Not Making a Spending Plan
Create a budget with your income and expenses, and then stick to your budget.
4. Not Planning for Higher Health Care Costs
5. Relying Too Heavily on Social Security
Avoiding this just requires that you diversify your income sources and that you have more than just Social Security for your retirement plan.
6. Ignoring Investment Risk
Make sure you’re not too low or too high and that you’re right for your goals and objectives.
Finally, always consult with a registered investment advisor or a Certified Financial Planner™, somebody who is qualified in the areas of investment planning.
It’s going to pay you back huge dividends if you create and implement a plan. You just need to remember that retirement planning is an ongoing process.
Getting help and staying on course is the key. By taking proactive steps and avoiding these common mistakes, you are going to be able to secure a financial future and retirement you love. I know some of these may seem hard.
As I share, I started investing $25 a month 35 years ago. I just started investing in a mutual fund.
At the time, I had no extra money. I was a single mother, and I had to watch every penny I had. And it was that discipline of doing it when I couldn’t afford it that I am convinced is why I’m where I am today, which is wealthier than I could have ever imagined. Just by simply starting and being consistent at saving money, it changes everything.
I encourage you to just take that first step. You’re going to be so glad you did.
Until our next episode, take one action that will help you create a secure financial future and retirement you love.
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Thank you so much for joining me for
6 Retirement Planning Mistakes You Need To Avoid.
I’m Annette Bau (Bah oo).
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Bye for now.