Following are the most common financial errors in retirement planning. These are not necessarily in order of priority.
Placing too much in fixed income
The Trinity Study in 1998 showed, as many studies have since, that you need to have 50%+ of our portfolio invested in equities (or other growth assets). Failure to do so insures that your assets will not keep pace with an increasing cost of living. Closely related to this retirement planning problem is our next problem of short term investing.
Investing in short term securities
As people age, they allow their emotional insecurity to dictate their investment decisions. Most people would be better off having an investment manager to take the emotions out of their investing and guide them in their financial planning for retirement. Specifically, there is a tendency with age to worry about one's mortality and develop a short term retirement strategy with investments. As many seniors have said, "I don't buy green bananas anymore". This myopic thinking results in the purchase of six-month CDs and excessive amounts in money market funds and other low yielding investments. Because these investments have low returns, there is an increased risk of needing to use up investment capital for financial sustenance.
Underestimating how long you will live
The odds of living to a ripe old age are high; higher than you think. For example, someone at age 75 has a 12% chance of living to age 95. Many people tend to be pessimistic about their life expectancy, don't prepare a sufficient nest egg and consequently, have a flawed retirement strategy. This can be avoided by looking at an accurate life expectancy table and planning one's retirement finances so that your money has a 90%+ chance of outlasting you. The biggest mistake when financial planning for retirement is underestimating life expectancy.
Failure to cover the most significant financial risks
Health care (traditional health insurance) and long term care insurance (for when you are unable to care for yourself) are the two largest potential costs of older ages. You cannot be unprotected or you could face a fast bankruptcy. To omit planning for these contingencies is a huge error in retirement strategy.
Failing to get professional retirement planning assistance if you're not qualified
While some people are mathematically oriented, stay abreast of financial issues and investment matters, others do not. If you don't, then please get financial help to plan and implement your retirement strategy. This help could be anything from visiting a financial planner for 2 hours annually to have them review your portfolio to delegating your entire portfolio for professional management (typical cost is 1% annually).
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