Retirement: You’re either neck deep in it or you’re thinking about it. I’m thinking about it. What my life will be like when that day arrives.
But in an increasingly expensive world, how do you avoid running out of money?
By making good decisions, of course.
Whether you’re retired, or will be retiring soon, how can you be certain that you’re not overlooking something today that’s going to cost you big-time somewhere down the line?
Here are two of the most common mistakes that pre-retirees and retirees make that can cause harm and even ruin an otherwise perfectly executed plan.
1. Underestimating the risk in your portfolio.
Every few days someone comes into Allworth Financial for their first appointment—someone with over $1 million saved—and we run their existing asset allocation through our Portfolio Stress Test.
Guess what happens? We test their portfolio against various historical scenarios, and we find that there’s a very real possibility that if the market went into cardiac arrest—let’s say it dropped by 40 percent—that their savings would get wiped out.
And, all too often, this information takes them completely by surprise.
For my sensibilities, far too many people are addicted to the fear of missing out. They are so concerned with realizing every potential dollar of a market upswing that they carry too much risk in their portfolio.
But all investments carry risk, so what can you do?
Our Portfolio Stress Test takes your asset allocation and compares it to as many as 24 historical major market events to get an idea about how your investments could respond in a crisis.
If you haven’t retired, promise yourself that in the next two weeks you’ll get the allocation of your portfolio tested. You’ve worked hard for that money, and if you are thinking about retirement, you are probably too close to the end of your asset accumulation stage to endure a serious setback (i.e. a market correction).
I can’t emphasize this enough: Get stress tested ASAP.
If you have retired, consider your long-term goals, and talk to your advisor about your portfolio allocation. With the low interest rate environment of the last several years, a lot of people have tried to make up ground by accepting greater risk in their investments. But with interest rates likely to rise in the future, talk to your advisor about the possibility of re-evaluating your portfolio for any unnecessary risks you’ve exposed yourself to.
2. Putting your kids before yourself.
This is one of the most difficult things that I ever have to discuss with a client, but sooner or later, you’ve got to think of yourself. I’m a parent of two wonderful children who have both recently gone off to college. It’s hard to let them “go.” But for many clients, what’s even more difficult is reining in the money train, both during and after college.
But here’s what I ask my clients who are spending gobs of money on their grown children: Do you want your kids to have to support you in 20 years? Because that’s exactly what could happen if you get into too much debt (or fail to adequately save) while supporting them.
We live in a time when our children stay financially dependent longer than they did in previous generations. It’s not abnormal for children in their late 20s or even their 30s to still live at home, or to still have their expenses covered by a parent.
But is there another way?
While sheltering our children might help them get a more secure “launch,” I’ve seen it place the retirement of too many of my friends and clients at risk.
Unfortunately, I know people whose co-signing of credit cards, cars and apartments for their children has bankrupted them.
When and where to draw the line is a very personal decision. But I’ve used this warning more times than I can remember: In 20 years, do you want your kids to have to support you?
Are your children chasing their dream at your expense? Maybe it’s time for a heart-to-heart. Often, doing what’s hard now is better for everyone later.
When Pat McClain and I founded Allworth Financial some 24 years ago, a large motivation for the both of us (having briefly worked for a firm that wasn’t at all interested in meeting the needs of clients) was education. It’s one of the reasons we host a weekly radio program (Money Matters), while giving several dozen financial literacy workshops each year.
What we’ve realized in the last 24 years is that not everyone learns the same way. That’s why our educational materials are so varied. For instance, if you’re looking for a deep dive into the retirement transition process, you might like to read my latest book Personal Decision Points. But if you’re someone who learns best by watching and listening, then our 7 Personal Decision Points webinar would be best for you. And, lastly, if time is an issue, and you’d just like an easy-to-digest introduction to the retirement transition process, our 7 Personal Decision Points digital guide can give you an overview of the basics without weighing you down.
The choice is yours. But whatever you decide, I hope you’ll take some time to reflect on the content of this article, and then take a moment to familiarize yourself with the information contained in the useful pieces mentioned above. In the end, it’s your retirement. And I very much want you to make it everything you’ve dreamed it would be.