Top 10 Retirement Planning Mistakes


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Top 10 Retirement Planning Mistakes
Top 10 Retirement Planning Mistakes


When planning financially for the future, what are the most common retirement planning mistakes people make?

Top 10 Most Common Retirement Mistakes

According to professionals, the most common retirement planning mistakes are time-related, like outliving savings or not understanding how inflation can affect a portfolio over time.

The number one mistake? According to 49% of financial planners, it’s underestimating the sizable impact inflation has on the value of retirement savings.
This chart uses data from the 2022 Natixis Global Survey, which polled 2,700 financial professionals across 16 countries between March and April 2022.

Meanwhile, 46% of advisors identify underestimating life spans as the second-most-common retirement mistake. The longer one lives, the more retirement savings are needed to replace income. Additionally, healthcare costs associated with aging, highlighted by 39% of advisors, are another common retirement planning mistake.

Many other primary retirement mistakes center around investment planning, including overestimating investment income (42%), investing too conservatively (41%), and setting unrealistic return expectations (40%).

Conversely, 21% of retirees are noted to invest too aggressively, according to financial professionals. While aggressive investing can be extremely beneficial, especially in one’s earlier years, it can pose significant problems later in life. This is because, during retirement, individuals need liquidity and must have access to their savings to cover life expenses. If a portfolio is volatile or not diversified, it may be challenging to recover from short-term or sudden losses.

(Source - Visual Capitalist - Full the full article read here)

Keep Inflation in Mind

Plan for retirement with inflation, and remember that inflation has negative effects too. Even a small dose can deal out heavy damage during the years of retirement. Continue reading how to plan for the rate of inflation and what/when to expect inflation to come into play in relation to your age. The amount of inflation one has to face depends on where they stand with the changes of inflation and their age. Inflation means you have to pay more and you have gone through a decrease of your buying power.

Price changes of consumer goods and services
CPI by Type of Goods or Service

The Consumer Price Index (CPI) is a reliable indication of the extent to which inflation is damaging the economy. That macro figure is useful for policy makers and finance professionals, but most people feel inflation as it occurs: at the cash register or check out line.Since we crossed into the 21st century, Americans have been living through a divergence of price movements across different categories.

Nowhere is that more vividly depicted than in this chart, conceived by AEI’s Mark J. Perry and sometimes called the “chart of the century” because it provides such a great stepping off point for discussing a wide range of economic forces. The basic take away is that many consumer goods—especially goods that were easily offshored—experienced price declines. And many “non-tradable” categories saw dramatic price increases.

How to protect your retirement savings from rising inflation

  1. Think about incorporating a few inflation-protected diversifiers

While the increase in inflation may be concerning, investors with a healthy, well-diversified mix of traditional bonds, stocks and assets may have some built-in defense. That's because portfolios like these traditionally have a tendency to continue growing even if inflation takes off. "We still believe that a blend of stocks and bonds can help investors achieve growth while managing risk," says Naveen Malwal, an institutional portfolio manager with Strategic Advisers, LLC.

  1. Assess your budget

David Peterson, director of Wealth Planning at Fidelity Investments, believes rising prices will pinch discretionary spending more, as consumers likely will cut nonessential spending. Peterson suggests such changes in spending could be a significant lever for dampening inflation’s impact. “Understand what’s driving inflation,” Peterson says, “and see if you can shift what you’re spending your money on, so it’s a less significant hit.” It might make sense to delay buying some consumer goods that have been hit particularly hard, like used cars and furniture; or groceries such as pork and bacon, which have seen double-digit price increases from a year earlier.

  1. Don’t grow too confident in cash

While it can be tempting to flee the marketplace during periods of volatility and place a portion of your assets into cash, holding cash during an inflationary period can actually be counterproductive. “It may feel safe,” says Naveen Malwal, an institutional portfolio manager with Strategic Advisers, LLC., “because the number in your account appears to be staying stable. But the longer it sits there, the lower your purchasing power can get.” Worse, you’re likely taking a hammer to long-term performance by pulling money out of the market. Missing only the 10 biggest days in more than four decades of investing could shrink a nest egg by a whopping 55%. “Investors who can take on even a little bit of risk will typically have a far better chance of keeping up with if not ahead of, the rate of inflation right now,” says Malwal.

  1. Look into gold

Many people view gold as a hedge against inflation. In fact, some will go as far as to say that gold is an "alternative currency" especially when you consider countries whose currency is losing value. These countries most of the time use gold or other strong currencies only when the value of their own has failed them. Gold is a real, tangible good and in most cases will hold its value.Inflation occurs when the price of goods and services rises.

The big issue on why good and services prices rise is because of supply and demand. If there is a higher demand for goods or services it can cause the price to go up. Also, if the supplies of the good and services go down than the price can go up. Another reason why goods and services prices can go up is because of demand. The demand can go up if there is more money to spend on the goods and services. However, gold is not a perfect hedge against inflation.

An argument against gold is pointed out by The Telegraph's Andy Critchlow(2010), in his article “Why gold is not a perfect inflation hedge” article below. If inflation creeps higher, central banks would be forced to raise interest rates as part of monetary policy and holding an asset like gold which pays no yields, is not as attractive as holding onto an asset that does when rates/yields are higher.

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The information contained in this blog is not intended as financial advice. Past performance is no guarantee of future results. All investments involve risks. We do not guarantee any specific outcome or profit. This blog does not take into account your particular investment objectives, financial situation or needs. We recommend seeking advice from your own financial or investment adviser.

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