It’s easy to for life to get in the way and push off retirement planning. Retirement never seems as close as it really is and it’s not uncommon for clients to be caught off-guard as the end of their working life approaches much faster than they ever thought it could. Suddenly, it’s crunch time and clients can be left scrambling. The earlier financial planning professionals start engaging customers and beginning the dialogue on retirement planning, the better.
It’s estimated that up to 10,000 boomers per day are turning retirement age these days and it’s an important conversation to have as they draw ever closer to the day where they begin their drawdown years. That being said, most mistakes are made in younger years and should be addressed with clients as early as feasibly possible to make retirement planning efforts much less frantic in later years. Here are the top 3 mistakes that people make when planning for retirement:
1) They Don’t Start Saving Early Enough
It’s common for clients to assume they have plenty of time to plan for retirement once they buy a home, build a family, put the kids through college, etc. When people are young, they think they have at least 40 years before they retire and put it off. Suddenly, they find themselves in their 30’s with a family, mortgage, and car loans to manage as well and it becomes much more difficult to begin the retirement planning process.
Don’t let them become a casualty of their procrastination. Before they know it, they’re in their 50’s and their retirement planning can be forever handicapped. Time is of the essence when it comes to retirement planning. The longer clients delay, the greater risk they take on towards their futures. There’s never really a “right” time to start building a financially secure retirement.
One way to help clients gain the right perspective is to inform them that for every six years they put off retirement savings, the amount required to save monthly will double in order to reach the same level of retirement income had they began saving earlier. This can help reinforce the importance of starting sooner rather than later.
2) Inaccurate Assumptions of Retirement Income
Clients commonly do not know how much income they will need in order to maintain their current lifestyle in retirement. Ask them. Most likely, they will answer “I don’t know” or make an inaccurate assumption. Estimating too high can be discouraging as the goal then seems too lofty and unattainable which can make the entire process seem impossible. If they estimate too low, which is much more common, clients can run into financial turmoil during retirement and then be forced to make unpleasant decisions that could change the way they live their life.
One way to get retirement planning off to a good start is to have clients make the assumption that they will need approximately 67% of their last salary as income during retirement. It’s also important to remind clients that newly retired people tend to spend more on travel, entertainment, eating out, especially early on when there is both the time and good health to enjoy these things. Later on in life, however, healthcare costs are likely to escalate, sometime dramatically. It’s important to factor in all the aspects of expenditures that clients may have in order to draw the most accurate picture of needed retirement income possible.
3) No Plan for Long-Term Care
Average longevity is continually growing, making it also important to plan for the increased likelihood that your client or their spouse, or both, may require long-term care at some point in their retirement. Anyone who has taken the time to care for an aging parent understands how much the cost is on families emotionally as well as on their bank account.
It’s important to evaluate each client’s, and spouse’s, options to see if long-term care insurance is a feasible product for their situation. Although costly, this supplemental insurance can provide much-needed assistance in obtaining long-term care.
Bringing awareness to, then creating a plan to overcome, some of these more commonly made mistakes can help advisors ensure that clients and their spouses are able to avoid possible pitfalls later in life. Speaking to clients early, creating a realistic plan for future income and planning for possible long-term are three of the most important aspects to prudent long-term retirement planning.