Your retirement planning may require more than just knowledge of how to take Social Security benefits or how to contribute to retirement accounts. You also need to know how to avoid making financial mistakes. Here are five mistakes to avoid when planning for retirement:
That means a retiree could have decades of retirement to fund. You should carefully consider how to allocate your investments appropriately to provide enough growth to provide for your entire retirement. Bear in mind that your individual situation, family history and health history can have a significant impact on your life expectancy. But overall, if you don’t want to run out of money after you’ve retired, you may need to plan for a longer time horizon than you initially thought.
Cash flow is any money withdrawn from your account, regardless of the source. Income-generating investments can be one source, but they aren’t the only means to generate cash flow. Although they may be favored by some retirees seeking to reduce the effects of market volatility, income-generating investments do also have risks.
For instance, increasing allocation to bonds increases inflation risk—the risk that your investments won’t grow enough to keep pace with inflation. Income from stock dividends, on the other hand, isn’t a free lunch. A stock’s dividend payments could reduce its share price. Dividend payments can also be reduced or suspended by the issuing company. One alternative cash-flow source is stocks. You could invest in stocks and sell slices periodically to build cash. This approach—what we call homegrown dividends—can offer some flexibility and potential tax benefits.*
Other investors may experience confirmation bias, which is the tendency to only look for and accept information that confirms their beliefs. Investors may not consider reliable sources and data just because it doesn’t fit with what they currently believe in. Ultimately, emotions and biases can weaken your capacity to remain objective and make the best financial decisions for your retirement.
Nobody enjoys making mistakes, but everyone makes them, from legendary money managers to first-time investors. The quicker you admit your mistakes and understand their lessons, the better off your portfolio will be. It would be a shame to miss the lessons of such mistakes and risk repeating them.
Even experienced investors can make some of these common investing mistakes. If you need help navigating your retirement planning, from understanding Social Security benefits to investment allocation decisions, contact Fisher Investments today. We may be able to help.
* The contents of this guide should not be construed as tax advice. Please contact your tax professional.
[i] Source: Centers for Disease Control, National Vital Statistics Reports, 2010 United States Life Tables, as of 08/21/2019. http://www.cdc.gov/nchs/data/nvsr/nvsr63/nvsr63_07.pdf
[iii] Source: FactSet, as of 01/18/2019. S&P 500 returns from 01/01/1926 to 12/31/2018.