Mike Causey

Ten Really Dumb Things To Avoid

When the typical federal or postal worker retirees, he or she should be much better off than their peers in the private sector. But to make sure check out Senio...

Federal News Network Staff

August 7, 2008 4:00 am

4 min read

Whether you are 20 years from retiring, or pulling the plug in a couple of months, there are things you should do, and things you should not do. So what are they? How can you maximize your benefits to make sure your retirement diet won’t center around dog food?

We asked financial planner (registered investment adviser) John Bernards for a little help (as in “you do all the work”) and he sent us the Dirty Ten. Today we give you the first five tips. Tomorrow the rest.

Here goes part one.

In a sense, you have been planning for your retirement ever since you started working. Maybe you have been contributing to a 401(k) plan or maybe you’ve been socking away money in an IRA, but without a doubt, you are looking forward to your golden years. And we want you to enjoy those years without worrying about having to take out a reverse mortgage on your house.

For many people, retirement is not the stress-free vacation from financial concerns that they envisioned. Bad planning is often the culprit. What follows is a list of ten common mistakes that retirement-age individuals often make as they try to manage their own financial affairs. Naturally, our careful planning will avoid these pitfalls so that you can relax, confident of your security in retirement.

Outliving your assets. We live in an era of unprecedented progress. Medical and technological advances have improved the lives and longevities of Americans, and at age 65, life expectancy is 81.6 years for a man and 84.5 years for a woman. As an increasing number of Americans celebrate their 90th and 100th birthdays, financial professionals must recognize the probability that a client’s retirement may last just as long as his or her working days. How to ensure retirement income for 30 or 40 years after your last paycheck must be the focus of your wealth manager.
Favoring accumulation over distribution. You may have spent years trying to grow your assets. Now it’s time to draw on your accounts. And while this may appear to be a simple matter of selling a particular stock, there is something of an art to taking distributions. Determining which assets to liquidate and when to do so requires careful analysis of projected returns, income streams, and taxable consequences.
Ignoring the impact of inflation. A couple will often say something like, “All we need is $60,000 per year, for the next 20 years. It’s simple.” It is not, however, quite as simple as it may seem. Assuming a 4-percent inflation rate for the next 10 years, the couple would need almost $90,000 if they wanted to maintain their current lifestyle. If they lived 20 years, they would need to draw more than $130,000 after year 19, all because of inflation. What’s worse, year-over-year increases in the price of prescription drugs and medical supplies have far outpaced the inflation rate as measured by the Consumer Price Index, forcing the retirement community to scramble for income they had planned on saving or passing on to heirs. Prudent financial guidance requires that you factor in the “real” value of your asset growth and income needs.
Uncertainty about social security. Many people believe that once they hit early retirement age, they should immediately begin receiving social security benefits. Other retirees have been advised to wait as long as possible before drawing distributions. While there is no “right answer” for everybody, there is a right answer for you. Depending on your health, life expectancy, retirement goals, and sources of income, you may want to receive social security benefits beginning at age 62 (your early retirement age), your full retirement age (between 65 and 67), or even age 70. Because there is no time at which it is mandatory to take benefits, determining just when you should begin receiving social security is a critical component of retirement planning. Consult with a trusted wealth manager.
Incorrectly titling your assets. It is not uncommon for a client to own accounts that name an estate as beneficiary, fail to list a contingent beneficiary, or that are jointly held. Nonetheless, the consequences can be quite severe. In some cases, you or your relatives may be dragged into a probate court, creditors may gain access to your wealth, your inheritance might fall into the hands of people other than those whom you intended, and you may incur significant tax consequences. Allow your advisor to conduct a thorough beneficiary review, and it could save you millions of dollars. John Bernards

Nearly Useless Factoid

How now brown cloud? According to NOAA, while most clouds are seen as being shades of black and white, depending on how the cloud was formed, they may appear to be shades of blue, grey, yellow, orange or brown.

To reach me: mcausey@federalnewsradio.com