December 14, 2012

5 Common Mistakes When Retirement Planning

Since there are complicated aspects of retirement planning, many people choose to work with professional financial planners in order to better ensure a comfortable retirement. In addition to accumulating an appropriate-sized nest egg, retirees also need to consider their debt, amount of insurance, inflation, other sources of income and how to protect their investments. offers five common mistakes that people make when retirement planning that can greatly affect their golden years.
1. Retiring with too much debt. Financial planners will generally recommend not retiring until credit card, mortgage and other forms of debt are paid off. These monthly payments can quickly cut into savings, which will be paying for past expenditures — plus interest and current expenses. Increasingly, Americans are entering traditional retirement years with heavy debt.

2. Not buying enough insurance. Although people over the age of 65 are eligible for Medicare, they will still have additional healthcare costs that are not covered. Depending on coverage, many items are not covered, such as premiums, deductibles, coinsurance, eye glass coverage, hearing aids or long-term nursing home care for longer than 100 days. Guidance from a professional is recommended if the family has significant assets to protect.

3. Not taking inflation into account. Inflation will slowly decrease the spending power of savings. However, there are steps that can be taken to avoid this. Social security, some annuities and pensions are adjusted for inflation annually. Treasury Inflation-Protected Securities (TIPS) are a government bond that promises a rate of return that exceeds inflation.

4. Depending on one source of income. A certified financial planner may recommend having four to six sources of retirement income without counting on just one. By diversifying, retirees can avoid losing all their income if one source loses value. Guaranteed sources can include Social Security, pensions and annuity payments. Other common sources can be 401(k), IRA, CDs, personal investments, cash investments, rental properties and royalty income.

5. Not protecting savings. About five to 10 years before retiring, people should start to focus more on protecting their savings rather than growing them. People can reduce risk by shifting assets to more conservative investments, avoiding borrowing or taking early withdrawals and minimizing fees and taxes deducted from savings. More funds should be placed in low-cost investments and traditional and Roth retirement accounts.