Retirement Planning Mistakes

How much do you need for retirement? Some people can manage on 50 percent and others can't make it on 100 percent of their current income. Let's look at some mistakes to avoid while planning for your retirement.

Underestimating health care costs: The September SmartMoney article said the typical male age 65 will need $378,000 to cover Medicare supplement insurance, out-of-pocket expenses and drugs for the rest of his life. This seems like a bit much, but half of this amount still is a lot at $200,000. This information came from the Employee Benefit Research Institute. Health care is expensive, so make sure you plan for the costs as you age.

Giving too much money to adult children: The Journal of Marriage and Family states four out of five parents gave money to their adult children about once per month. Where are those parents when I need them? CreditCards.com states 40 percent had paid off a debt for an adult child. I see this happen a lot. The retirement planning is not complete, but they are paying home and car payments for working adult children. There is a line between enabling and helping. Where do you draw the line?

Investing too conservatively: On SmartMoney. com, Catey says stocks have outperformed bonds since 1926. Stocks have an average return of 9.8 percent, while bonds were at 5.45 percent. It is hard to get your money to work for you if you invest in an asset class with low risk. I just had a 47-year-old who has had his money in a money market inside his 401(k) for the past 20 years. Even with the corrections in the past 10 years, he probably would have had a lot more money saved using equities. There is no guarantee for future returns. One rule I have heard is to have your age in bonds, plus or minus 10 percent.

Bored with all that free time: What if sitting on the porch reading your book gets old? It costs money to do things. Traveling and hobbies can be expensive. Make sure you plan an "activity" budget to do things with. Living expenses, debts, food and insurance are things to plan for. Start planning a fun account to enjoy life when you retire.

Not understanding your life insurance policy: I see many seniors buying multiple whole-life insurance policies because they want their funeral paid for. The time to buy these policies is not when you are retired and possibly in bad health. It is not a good financial decision to pay $100 to $200 per month on life insurance when you are retired on $1,000 per month, in most cases. Is your policy going to end? Are your premiums going to go up? Can you spend your dividends without affecting your guaranteed death benefit? These are all questions you need to know at retirement.

These are just a few issues that could affect your retirement plan. There are many other issues that could affect your retirement income. Consult with a professional to make sure you are on track for the best retirement you can have.

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