“Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest, but not so fully that you run out of money.” Jonathan Clements
A recent survey for The New York Life Insurance Company of retirees between the ages of 62 and 70 with investable assets of $100,000 or more discovered this: nearly 1/2 of those surveyed wished they had retired sooner. And not just a little sooner: the average length of time was 4 years sooner.
People often delay retirement because they are afraid they haven’t saved enough. A popular misconception is that most retirement plans fail because of poor investment returns. But the real culprits are behaviors that undermine retiree’s objectives. These behaviors are controlled totally by you, not the stock market, so let’s look at a few ways retirees unwittingly sabotage their carefully-planned retirements:
- Starting a business – Over 2/3 of respondents in the 2015 ERBI annual Retirement Confidence Survey said they plan to work in retirement. The capital required to start a business from scratch can make a big dent in your nest egg. If you’re bored and unfulfilled, you have many options. Solution: volunteer at SCORE or a charity close to your heart, or find a part-time job that fulfills your need to have a sense of purpose.
- Buying a second home – Many Americans consider owning a vacation home the ultimate achievement. However, it’s easy to underestimate the cost of keeping up two homes after you no longer have a paycheck coming in. Even as an investment bought with savings, you can reduce your liquid (spendable) assets by six figures or more. Solution: home-swaps (VRBO and Airbnb), adding more travel to your budget, or sharing the cost of a second vacation home or RV with other families.
- Getting a divorce – According to sociologists, Susan Brown and I-Fen Lin, divorce among Americans age 50+ doubled between 1990 and 2010. You may have a healthy seven-figure retirement account but when you have to split it and your living expenses double, the lifestyle you planned as a couple could be sharply diminished. Solution: Before you hire an attorney, hire a marriage counselor and have a financial planner calculate the financial hit to you individually.
- Peter Pan parenting – Did you continue paying your kids’ car insurance and cell phone bills after they (finally) moved out? Enabling them to remain children forever will be a permanent drain on your savings and does neither you nor the kids a favor. Do you really want to go to your children someday, hat in hand, for help with your grocery bill because your retirement accounts are drained? Solution: If you can’t say “No” on your own, enlist the aid of your CPA or financial planner. I tell clients that it’s fine to make me the bad guy.
- Retiring before you are ready – You may hope to retire at age 62 and begin collecting Social Security, but you’ll have to cover three years’ worth of health insurance until Medicare kicks in. And you’ll cut your Social Security benefits by 8% for every year before age 70 you begin collecting. Solution: Retirement is possible at age 62 – or even before – but you shouldn’t consider it without a carefully designed, actively managed financial plan.
I haven’t touched on one variable yet; more than any other, it will determine whether you will have enough money to last through “the end of your plan”. Watch my video, “Will you outlive your money?” to learn more.