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4 Reasons Your Retirement Plan Might Fall Short

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May 11, 2021

Key Takeaways: 

  • A diversified portfolio is the best protection against market volatility. 

  • To maximize savings and Social Security benefits, consider delaying retirement. 

  • Playing “catch-up” with retirement savings is a dangerous game.

  • A tax-efficient strategy is key — particularly for military families. 

Ever find yourself daydreaming about retirement? Whether your visions include traveling the world, dedicating more time to beloved hobbies, or leaving a financial legacy, saving enough money is critical to enjoying the life you’re looking forward to. Everyone deserves a secure and happy retirement, but key planning mistakes and financial complexities can cause those plans to fall short.

According to recent studies, Americans continue to be concerned about retirement planning. One survey showed that 58% of people between the ages of 40 and 79 would give themselves a grade of C or lower when it comes to saving for retirement. The report also noted that only 60% of those in their 40s and 65% of those in their 50s think it’s likely they’ll be able to retire at their target age of 67.

For members of the military community, income sources such as Thrift Savings Plan (TSP) investments, a pension, or VA benefits may help you feel more financially secure in retirement. However, you could still be engaging in some of the biggest retirement planning mistakes — without even realizing it. How can you enjoy your “golden years,” without hurting your finances in the meantime? Here are 4 retirement planning mistakes worth avoiding:

Mistake #1: Focusing on the Return Rate

If you’re targeting a high return, it can be easy to get caught up in chasing that outcome. Don’t let your focus on high-yield, high-risk investments get in the way of diversification.  Rather than pursuing rates of return, shift your focus to creating a portfolio that spreads out investments through a variety of fund types. This might include balanced, index, equity, or global funds. Working with a financial advisor can help protect your retirement savings during times of market volatility. Plus, they can monitor and rebalance your portfolio over time to help keep it in line with your timeline, retirement goals and risk tolerance.

Mistake #2: Retiring Too Early

If you're not saving enough for retirement, it's worth considering staying in the workforce a little longer and waiting to take your Social Security benefits. Social Security data shows that around 33% of retirees live until 92 years old, and 75% of retirees apply for benefits as soon as they hit 62. With this in mind, pushing retirement back a bit could benefit you in the long run. If you wait until age 65, for example, it will allow you more time to save money and also maximize your benefits. 

But delaying retirement isn’t always an option. Health or life circumstances may force you to leave the workforce earlier than expected. Whenever you apply for Social Security benefits, be sure to submit your application four months before you want them to start. 

Whether you retire early or need to retire later than planned, working with a financial advisor familiar with military life and finances can help determine the right strategy for you when the time comes.

Mistake #3: Inconsistent Savings

Don’t be fooled into thinking your future self can just “catch up” on retirement savings. The truth is, catching up rarely happens, and unexpected life events can make it impossible in some cases.

According to a study by the Center for Retirement Research at Boston College, the median retirement account balance was just over $110,000 for 55- to 64-year-olds. If this money had to stretch 20 to 25 years — which it likely will as people are living longer — it amounts to just over $400 per month to live on, which is unrealistic in today’s world.

To save more, start by creating a budget that incorporates automatic savings and cuts out unnecessary spending. You can also invest in your TSP or 401(k) through your employer, and put aside extra money with each raise or bonus. Working with an experienced financial advisor who understands military income can help shed light on additional strategies to boost your retirement savings.

Mistake #4: Not Factoring Taxes Into the Equation

Another common retirement planning mistake is forgetting about taxes and their effect on your savings. Tax deductions change for many people once they are in retirement. For the military community, tax considerations can be even more complex, so it’s important to speak with a financial professional who understands your unique situation. It’s essential to build up savings for retirement, but without a careful withdrawal strategy to minimize taxes, you may end up outliving the money you worked hard to save.

If you’re looking forward to the days when you can leave the workforce and enjoy a comfortable retirement, early and effective retirement planning can help you boost your savings and avoid costly mistakes. Whether you need help understanding income streams, creating a tax-efficient withdrawal strategy, or diversifying your portfolio, AAFMAA Wealth Management & Trust LLC can help. Contact our team today to get started.