Learn A New Life Skill
Many financial planners harp on the fact that you need money in your old age. But, you also need mental stimulation. Pick up a new life skill. This could be one of the most important factors in you aging well.
Do Not Overdraw Your Savings
Common retirement mistakes include spending too much, not saving enough, and not really developing the mindset of a retired person – namely, that you’re living on a fixed income.
But, one of the more fundamental problems people have is drawing enough money to live on without drawing down too much.
Bottom line: Don’t overdraw your savings.
Most people expect to be able to withdraw 4 percent from their savings during retirement. Some people believe they can withdraw more. That’s not realistic.
The classic 60/40 split (60 percent stocks/40 percent bonds) might yield an average weighted return of just 7 percent, before inflation assuming bond yields remain compressed and never rise beyond 3 percent and stocks return 10 percent.
Do Not Retire Early
Retiring early sounds cool. Plus, you can spend more time going on vacation, seeing your grandkids, and gardening in your back yard.
The retirement dream is really nothing more than a myth. Unless you really hate your job (in which case maybe all you need is a new job), there’s nothing sexy or exciting about retiring early. What it really means is that you better have saved even more money because you’ll need it (you’ll be living longer in retirement if you start early).
Not only that, if you retire too early, there will be a gap between health insurance coverages – you won’t be able to get Medicare until your normal retirement age.
Bottom line: Do not retire early. It’s less cool than it sounds.
Don’t Overestimate Your Skills As An Investor
Everyone believes that they are great investors. Here’s a reality check: most professional money managers can’t consistently beat the long-term average of the stock market. What chance do you think you stand?
Unless you’re willing to commit to learning about investments, and spend most of your time studying and experimenting with your retirement funds, odds are you’re not going to beat the market randomly buying and selling stocks or mutual funds.
Bottom line: If you believe Warren Buffett, you shouldn’t expect long-term stock returns of more than 8 to 9 percent, before inflation. You shouldn’t expect more than 3 to 6 percent from bonds, either. So, if you’re doing the classic 60/40 split, that puts you at about 7 percent or 5 percent adjusted for inflation. That doesn’t include fees or taxes which will reduce your returns further.
Don’t Underestimate Your Life Expectancy
In 1987, the average life expectancy of a man was 71 and 78 for a female. A lot has changed since them. Today, life expectancy is 76 for men, and 81 for women. And, if you do live to age 65, then those expectancies change.
If you do make it to age 65, plan on living into your late 80s. If you make it that far, you will likely live into your 90s and, if you make it that far, you could join the rising number of centenarians (people over the age of 100).
Don’t laugh. According to some research, there has been a five-fold increase in the number of centenarians over the last three decades.
In England or Wales, for example, the number of people over age 100 in 1981 was just 2,420. By 2012, that number had shot up to 12,320.
In the U.S., between 2007 and 2011, the American Community Survey found that people aged over 100 accounted for 55,000 people or 0.02 percent of the population.
By 2050, it is expected that the number of Americans living over the age of 100 will rise to between 265,000 and 834,000 people.
Today, the total number of people over the age of 110 (worldwide) is 381,790.
Bottom line: plan to live to at least 80. If your income doesn’t outlast you, you won’t be enjoying life beyond that.
Allen Foster has held a senior position in a financial planning role for a number of years. He enjoys the opportunity to provide tips and general advice online. His insights and suggestions can be found on a number of different websites.