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Warren Buffet is one of the most successful investors of recent time. Yet his investing principles are surprisingly simple and easy for everyone to understand.
Warren is also famous for his straightforward and clever pieces of advice. And one of his most popular quotes is, "It's good to learn from your mistakes. But it's even better to learn from other people's mistakes."
This is especially true when it comes to planning for your retirement. Below are five common retirement planning mistakes that could wipe out your savings.
1. Underestimating your taxes in retirement
Taxes will likely be your largest expense in retirement. Here's why.
You'll owe taxes when you withdraw money from your IRA, 401K, or any other retirement accounts. You also owe taxes on other investment income from dividends, CDs, treasuries, etc., or real estate income. And when you add it all up, you could end up paying even more taxes when you're retired.
Most Americans simply prepare and file their taxes every year with the help of an accountant or a CPA. Obviously, this is important, but aside from some limited deductions that might save you a few dollars, there are no significant savings to be found. At this point what's done is done. You're just reporting history.
If you want to save money on taxes, you need to take advantage of tax planning. This is especially powerful in retirement. With tax planning, you're looking forward, not backward. And it's not uncommon for us to uncover $50,000, $100,000 or more in tax savings for B.O.S.S. clients.
The bottom line: Be sure to take advantage of tax planning for retirement. It could save you a bundle.
2. Not creating a plan to generate income
When you retire, you'll likely end up in one of two different camps.
One, you're living off of your retirement savings. So, every time you spend a dollar you see your retirement savings shrink. This becomes a stress point because you're living in constant fear of running out of money.
Or in the second camp, you have a plan to replace your paycheck in retirement. You have different sources of income coming in every month like clockwork. This helps you pay for all of the things you dreamed of doing in retirement, like helping out your kids and grandkids, traveling, or even buying that dream vacation home.
But stubborn inflation and stock market volatility have made generating income in retirement more challenging.
Many of the traditional fixed income options like CDs and savings accounts are no longer viable. And after you account for the impact of inflation and taxes, putting money in the bank could be a guaranteed loss. Bonds are in the same boat. And many people still fear investing in the stock market.
The good news is there are still viable options to generate income today — many that you may not even know exist.
3. Not having a plan to optimize your social security benefits
Filing for social security could be one of the most important financial decisions you'll ever make.
Why? Because the difference between your best- and your worst-case scenarios could be hundreds of thousands of dollars in lifetime income.
Yet, retirees continue to make critical mistakes. According to Forbes, 96% of Americans lose out on an average of $111,000 in social security income.
It comes down to people believing that filing for social security is as simple as claiming their benefits early or late. But there's a lot more to it than that.
Filing social security is about more than just the size of your benefits check. This decision could trigger higher taxes on your social security benefits and higher taxes on your IRA and 401K withdrawals. It could cause you to forfeit thousands of dollars every year in spousal benefits, and it could even double your Medicare premiums.
That's why it's critical you consider the impact your decision could have on all of these things before you file for social security.
4. Taking too much investment risk
When you have wild swings in the stock market (much like the last few years), your investments can become skewed. And if you are not updating and rebalancing your portfolio, you could unknowingly be invested too conservatively or too aggressively. And neither one of these scenarios are good.
When B.O.S.S. has new client meetings, they find that 99% of people are taking far more investment risk than they realize or need to at this stage of the game. Unfortunately, this is how a lot of people get themselves into trouble.
It's insane to risk what you have in order to obtain what you don't need.
–Warren Buffett
The most effective way to reduce your risk is to consistently update and rebalance your investments. But this is not a one time fix. You should update and rebalance your investments every 6 to 12 months, or whenever there are major market corrections or big life events.
5. Underestimating the skyrocketing cost of healthcare
If you or someone you know has spent any time in a hospital, you know the price of healthcare is out of control. An overnight stay or something non-life-threatening could set you back tens of thousands of dollars. But the cost of a more serious issue could be financially catastrophic.
Most people think they don't need to worry about the cost of healthcare in retirement because Medicare will pay for everything.
Unfortunately, that's not true. Medicare will pay for some of your expenses, but not all of them. You will still have to come out of pocket for a big amount.
A healthy, average couple aged 65 will spend $662,156 on retirement health care expenses.
–MarketWatch
The cost of healthcare isn't getting cheaper, either.
Inflation for healthcare and medical services is growing at a much faster rate than the rest of the economy. According to Health System Tracker, the price of medical care has increased by 115.1% since the year 2000. In contrast, prices for all consumer goods and services rose by 78.2% in the same period.
Summary
Stubborn inflation, rising interest rates, and a looming recession are significant hurdles for this next wave of retirees. If you hope to retire successfully tomorrow, saving and investing alone won't be enough.
You need a bulletproof financial game plan.
As a special offer for KSL.com readers, B.O.S.S. will create a customized financial game plan for your retirement. Many advisors charge thousands of dollars for a customized financial plan, but they won't charge you a dime.
They call it the B.O.S.S. Retirement Blueprint. This blueprint is a comprehensive financial plan that could help you reduce taxes, generate income, pay for healthcare, minimize investment risk, maximize your social security benefits, create a legacy plan, and so much more.
This is the single most important tool that could help your money go a lot further in retirement.
To schedule your free analysis, click here.
About the authors: Ryan Thacker and Tyson Thacker are the president and CEO of B.O.S.S. Retirement Solutions with six offices throughout the Wasatch front. B.O.S.S. Retirement Solutions is a five-time winner of Utah's Best of State Award.
Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the U.S. government or any governmental agency
