Six Reasons Why Your Retirement Could Be A Financial Failure

Here is a question: "If you were nearing the end of your life, looking back over your retirement, what is it that you would want to see or remember?" This question opens the mind. It can help you visualize where you want to go and what you want to do. Because we cannot know when the end will come, it's important we make good decisions today, and take the right steps for the right reasons. Some of our clients start their retirement by cleaning drawers, redoing the kitchen, painting the house, planting flowers, cleaning the basement, and throwing out all the junk. With regard to retirement planning, you will also want to put your house in order.

But unlike the house cleaning, you should plan ahead of time so you won't be trying to reverse a decision later on, when it is too late to change course. There are several reasons why your retirement could be a financial failure.

The first is PROCRASTINATION. Procrastination actually starts while in your 20s, when the idea of retirement is far removed from your thinking. In your 30s, the cost of a family and new home and a very busy schedule cause you to continue putting off the idea. In your 40s, your career takes off, the kids have activities six days a week, and college is looming. Retirement will just have to wait. In your 50s, college becomes a reality. How grateful you are to see the kids are in good schools, but you are stretching the paycheck every month. Guess what? Now you are 60, with retirement at your doorstep (assuming there have been no road bumps along the way). So, procrastination starts young and stays with us. Remember Churchill's quote "It is not the plan but the planning that counts"!

The second reason is LACK OF PROPER INFORMATION. We have access to more information today than we can ever use. The problem is having the background to analyze what applies to you and what doesn't. I have many people ask what books they can read. No book will answer all your questions or, more importantly, address your feelings. The media that provides you with up-to-date, minute-by-minute information has no vested interest in YOUR situation or any fiduciary responsibility to see to it that you have a long, successful retirement. They inundate us with bad news and what to do in hindsight. Anybody can tell you what you should have bought after the fact. Telling us who the top performers were last year doesn't do anybody any good. It only encourages people to move their money in hopes of capturing some of those gains. It is unlikely that any particular stock or mutual fund will be the top performer two years in a row. So what have we accomplished with this information except fear and frustration? I send a market commentary to clients every Monday that recaps what happened in the markets the previous week. During a retirement workshop, I asked who would like to be on the e-mail list. Someone replied, "I would rather you sent me an e-mail telling me what was going to happen next week." Wouldn't we all like that! Everyone is unique in many ways, and your financial plan combined with what money means to you and your spouse is also unique and cannot be a cookie-cutter image of your neighbors' plan.

The third reason for retirement failure is a LACK OF UNDERSTANDING OF THE TAX LAWS. It is no secret that these laws change all the time and the legal nuances are difficult. Small changes can have a large impact on your overall long-term planning. Some of the more mundane tax implications on Social Security are one thing, but taxation on investments, the use of tax-credit programs to reduce taxes, and alternative minimum taxation are quite another matter. These subjects need to be addressed professionally as you make your plans.

The fourth reason for failure is NOT BEING PREPARED FOR THE UNEXPECTED. Without a crystal ball, we can never know how or when something may happen which might disrupt our life. Situations can occur that impact our finances unexpectedly. Although we associate retirement as relaxation, travel, and hobbies, it also comes with the potential for acute financial problems. It is the same risk we have accepted all out lives. If you have planned your financial affairs so income is satisfactory with regard to inflation and taxes, in essence so that you will not outlive your money, then we must also consider the potential for long-term health needs or we will not be doing our job. The exposure for financial disaster is off the charts for health care. People tell me they will not go to a nursing home; their family will take them in. I wonder if their family members know about these decisions! If they know about them, do they know what it means to be a health care provider or care giver? We all want to go peacefully, in our sleep. The problem is we don't have that choice. So your planning requires safeguards to provide options if you need them. Any plan, whether it's military, corporate, or financial, should address the potential dangers that may be encountered along the way.

The fifth reason for failure is FAILURE TO MONITOR PROGRESS. I am a firm believer that financial plans needs to be monitored much more closely than ever for people who are approaching retirement. You won't have the opportunity to add significant dollars to your retirement accounts after you have made the decision to retire. Entrusting your financial affairs to a financial planner does not mean distancing yourself from the process. You need to stay involved! If you don't have semiannual meetings with your advisor, then you should ask for these meetings (at a minimum) or find someone else. The majority of my clients who have come to me from other advisors have done so not because of poor investment returns but because they never hear from their advisor. A commission-only advisor has little interest in working with his clients after the fact, because no new dollars are going to be invested. Keep this in mind when searching out the right advisor for you. You want a partner who understands your hopes, fears and concerns, who is willing to be there when you need him, or her.

The sixth and last reason for failure is NO COMPREHENSIVE RETIREMENT STRATEGY. Develop a strategy. It is never too soon. We prefer to see clients three to five years before they expect to retire so that we can help them put a plan in place that will work given the funds and expectations of the individual or couple. Time can be your enemy, or it can be your savior!