7 mistakes that can derail your retirement

I have spent many years helping clients plan for their retirement. Unfortunately, I have also seen many mistakes that retirees have made along the way.

Some of these mistakes may be obvious, but nevertheless, they can derail one’s retirement.

Here are a few that you should avoid:

• Not understanding how expenses impact your retirement assets. We have seen retirees spend too little during their retirement years only to find out in their later years that they should have enjoyed more of their money. We also have seen others spend too much early in retirement only to discover later that they must drastically cut back expenses or face the possibility of running out of money.

• Not understanding investment risk. A growth-oriented investment portfolio can work out great during bull markets but can be disastrous during a long-term bear market. When stocks must be sold during market declines to meet current expenses, those losses become permanent and are difficult to recover from.

• Not having an income distribution strategy. Without a tax-efficient distribution plan, you likely will pay more in income tax than you should. Separate your tax qualified assets from your non-qualified accounts and coordinate them to maximize your after-tax cash flow.

• Letting your emotions manage your portfolio. Fear, greed and hope are feelings that can lead to making bad investment decisions. Stick to a plan that you have mapped out and keep your emotions out of it.

• Knowing when to take Social Security. Yes, it is true; waiting to take Social Security can make sense since your benefit continues to grow until age 70. However, by not taking Social Security as early as age 62, you may be leaving money on the table if you die prematurely. Often retirees neglect to consider their individual income needs, along with their personal and family health history, before making such an important decision.

• A lack of tax planning. Often, your lifetime tax burden can be reduced through marginal income tax bracket management and Roth IRA conversions. Keeping taxable income levels down can also help avoid additional income tax on Social Security and higher Medicare premium costs.

• Not having an estate plan. A good plan will address how and to whom your assets will ultimately be distributed. You have built your estate over a lifetime, now make sure it is passed to your loved ones at the least possible cost.

Managing your finances through retirement can be stressful. The best way to avoid pitfalls like these is to have a well-thought-out financial plan focusing on your retirement goals. No different from taking a road trip, the first thing to do is figure out where you want to go and then put together a map that you can follow. For additional guidance, partner with a qualified financial professional to help get you to and through retirement.

• Jim Platania Sr., CFP is the president of Platania Financial Inc., 2 W. Northwest Highway, Arlington Heights. He can be reached at info@plataniafinancial.com or by phone at (847) 870-7526.