The number one mistake people make when it comes to their retirement planning is not protecting their income. I can’t stress this enough; if there’s only one thing you can do when planning for retirement, protect your income. However, this isn’t the only mistake people make.

My wife could tell you I make multiple mistakes every day, but there’s a big mistake that I see happening frequently in retirement planning. People take too much risk. I often have clients come in with an investment strategy and portfolio that is the same now as when they were in their 30s. They’re maybe 58-62 years old and they’re in an 80% stock and 20% bond portfolio. Sometimes they set it up when they started their 401K and haven’t changed it since. It’s even worse when they’re in life-cycle funds and have no idea what’s going on.

Why is this important? Let’s say you’re invested in a growth portfolio with too much risk and you’re nearing retirement. Maybe you’re not even aware of the risk of loss in your portfolio. If there’s a bad year in the market and you lose 30-40%, how do you think that’s going to affect your retirement?

I had a couple come to the office who started the year with the goal of retiring by the end of the year. They had pretty good savings: around $750,000 at the beginning of the year. They came to me halfway through the year with only about $500,000 and were concerned that they wouldn’t be able to retire. They had lost almost 30% of their savings. They had been getting close to retirement but were still investing aggressively without realizing the risk they were taking.

There are two important points to recognize here:

1. People fail to realize that when their retirement is approaching, they need to fundamentally shift their objectives and goals. Their strategy needs to change. You can’t expect the same outcome for different needs. Albert Einstein said, “Insanity is doing the same thing over and over and expecting different results.”
2. It’s also important to be aware of the risk in your portfolio. I partially blame the financial industry for this, because  there’s a lot of confusing industry terms. Sometimes people think that because they’re invested in a balanced and diversified portfolio, they’re protected against market losses. They have no idea what percentage they’re risking, or what a balanced portfolio means. When you’re going through that shift in life you must recognize the risk you’re taking.

Imagine you’re on a lake in a little sailboat. If the wind is behind you, all you must do is point the boat where you want to go and you’re going to get there. This represents the period of life when you’re working and growing your money. When you’re adding money to your portfolio, that’s when the wind is at your back. When the wind shifts sideways, and it’s coming at your face, that represents when you retire. Instead of adding money to your portfolio, you’re taking money out. The wind is in your face. At this point, you need a different strategy to get where you want to go. You can’t just point your sailboat toward shore. You might have to zigzag your way through and navigate obstacles.

When you’re getting close to retirement, and the wind is shifting, you can’t keep doing what you’ve been doing. When you’re younger and  working, you can take a lot more risk. You should be taking risks. As you age, and especially when you get close to retirement, you need to make changes to accommodate a different set of goals and objectives.

At retirement, you’ve worked 25-30+ years and saved this nest egg for the day you retire. Most people need some degree of protection and safety to make their savings last their lifetime and provide them with a consistent growing income. Let’s go back to this couple I was telling you about who were halfway through the year and were down to $550,000. They still wanted to retire at the end of the year but now they were thinking it might not be possible. It turned out that by carving out some of their money and building protected assets, they were still going to be able to retire in time.

We were able to rescue their retirement, but it would have been so much easier back in January. Unfortunately, that’s water under the bridge. There’s no going back and fixing it. All you can do is make smart decisions moving forward. It goes without saying, you don’t know what you don’t know. Take time to be proactive and be aware of what you have and what you can do with it.

On a positive note, we often find that our clients do have enough resources, they just need to restructure and use different strategies. It can be that simple.

If you’re within 5-10 years of retirement, it’s particularly important that you do something immediately. The markets have been down this year, they bounced back a little, but let’s be honest, we’re likely headed into a recession. Markets could go down even more and it’s important to make smart decisions now before it’s too late.

If you’re nearing retirement, let’s make sure your ducks are in a row and that you have a good financial strategy. Give us a call and we’ll put together a free personalized Retire Right Report. Right is an acronym that stands for Risk, Income, Growth, Healthcare, and Taxes. We want to make sure you’re making smart choices in all those areas. If you are, you can move toward retirement with anticipation instead of apprehension or anxiety.

Our goal is to help you attain a status where work is optional for you, and you’re able to maintain that status. Give us a call and let’s get this ball rolling!

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