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When in the midst of your "working years," focused on paying bills and making ends meet, it would be easy to forget about long term needs like retirement income. And even when you have the foresight to form a basic retirement plan, there are many factors that are easy to overlook and that could become potential financial pitfalls in the long run.
Here are 5 key retirement strategies to help you avoid 5 corresponding common retirement pitfalls:
1. Failing To Plan For A Long Retirement
One major mistake people make is assuming their retirement period may only last 10 or 15 years, whereas, living into your 80s or 90s is rather common these days. That means you could need 20 to 30 years of retirement income to be on the safe side.
Social Security pays less than $1,500 a month on average, and if all other income has run out, you could end up relying on that alone - but it may not be enough. That's why multiple income streams need to be provided for well in advance, including streams that won't run dry 25 to 30 years into retirement.
2. Not Taking Account Of Inflation
Prices rise and the dollar gradually loses a portion of its value over the years and decades - that's been the trend for over a century and it doesn't look like it will change. Two to three decades' worth of inflation can cause your nest egg to run out early if you don't plan for it.
At 2% annual inflation, $50,000 will only be worth $30,000 in terms of today's purchasing power 25 years from now. That means you need to provide $80,000 or so to cover a $50,000 goal. One solution - aside from just saving more, is to use the lifetime income rider on a fixed index annuity.
3. Being Too Daring On The Stock Market
Investing some money on the stock market is a good idea and one that can pay off, but it's far too dangerous a basket to put all your retirement eggs into! Look for safer, more stable investments that may relate to the market but don't suffer from extreme market moves.
Again, fixed index annuities are among your best options in this regard. They protect your principal from loss, may guarantee a minimum gain, and offer a tax deferment shelter.
4. Not Formulating A Withdrawal Plan
Even when you've saved enough money for retirement, there is the danger of overspending and using it up too soon.
For anyone planning for 20 to 30 years of retirement spending, the rule of thumb is to withdraw only 4% - or at most 5%, per year from retirement investments.
You can withdraw less during market downturns and more during upswings as well, and you should monitor and recalibrate the withdrawal schedule annually.
5. Locking Yourself In Too Tightly
A retirement plan shouldn't be a straightjacket. You need flexibility so you can adjust to life changes and market moves as you near and enter retirement.
The more diversified your retirement strategies and portfolio, the more flexible you can be. And choosing options like FIAs that weather market storms well or options that allow you choices on withdrawal rates and timing, for example, also adds to your overall ability to respond to new situations.
For further help on implementing effective retirement strategies, contact a consultant at Summerlin Benefits Consulting today!