You’re knocking on retirement’s door and desperately want to call it quits within the next few years. You’ve been working since you were 16, or even earlier if you include babysitting, a paper route, or household chores… and you’re determined to make it happen. However, standing in your way are a few retirement planning shortfalls that you need to address right now.
As a result, you’re contemplating some new ideas and strategies to help close the gaps and make up for lost time, but you’re also weary of making changes to the way you have done things so far. For those of you in this situation, avoid these three strategies which may actually move you further away from your goal rather than closer to it.
Don’t Increase Your Risk Tolerance
As people get closer to retirement, it’s common for them to adjust their asset allocation to a more conservative model. As a result, these changes are likely to produce less volatility and lower overall returns. That’s bad news for people with retirement shortfalls since average returns of 3% – 4% aren’t typically enough to reduce their financial deficits.
This causes some people to consider the idea of being more aggressive. They’re convinced they can tolerate the higher risks in exchange for 8% – 10% returns, and swear they’ll switch to something safer once when they hit their goals.
Mathematically, taking on more risk may look good on paper, but it can have a very different look and feel in real life if things don’t go as planned. It’s sort of like saying, I’ll just rob one bank and be done. There’s the allure of a quicker payday, but the downside risk of losing 20% could cost you years of savings if a bear market or recession pops up when you least expect it.
That’s why retirees need to stay true to who they are when allocating their investments and avoid stepping outside of their comfort zone “for more.” Yes, it may mean delaying retirement for another year or two, but no sense trying to force it. After all, hope and prayer are not good investment strategies.
Don’t Underestimate Your Life Expectancy
Conversations about death aren’t always easy to have, but when it comes to retirement planning they play a crucial role in figuring out how long a retiree’s money will need to last. Many people look to their family health history for some insight, but like investment performance, the past isn’t always a good indication of the future.
Time and time again, I have heard people say, “I don’t think I’ll make it that long because everyone in my family passed away by age ___.” Yet, medical technology and research continue to make progress so rapidly, the last thing a retiree wants to do is become a burden on their family or dependent on the government because they miscalculated how long they might live.