Three Mistakes Women Make With Retirement Planning
Most people find retirement planning to be complex and overwhelming. While that's understandable, unless you have a sound retirement plan in place, you're jeopardizing your long-term financial future.
As a retirement advisor, I've found that women make three common mistakes that can devastate their retirement plans. Fortunately, by being aware of these mistakes - and taking the necessary action - you can potentially avoid these pitfalls, and increase your chances of a comfortable, worry-free retirement.
Not Participating in the Retirement Planning Process
Too often, married couples come into my office to discuss their retirement, and the husband is in complete control of the financial details. The wife merely listens to the conversation, gives little input, and nods in agreement with just about everything.
While this may work for some couples, as a woman it leaves you in a potentially dangerous situation. What if your husband dies in an untimely manner, and leaves you alone? Not only do you have to cope with the emotional burden of losing your partner, but you must deal with - and make decisions about - financial issues that you know little about simply because you weren't actively engaged in the retirement planning process.
With a little preparation, you can avoid this difficult situation. Try to take a bigger role in your retirement planning, and occasionally discuss your assets and types of financial protection with your husband.
At the very least, have a working knowledge of who your advisors are and what they do. Just having this basic understanding of your overall retirement picture - even if you don't know all the details - can help you through this troubling time.
Not Planning for the Proper Life Expectancy
Actuarial tables indicate that, on average, women live about seven years longer than men do. In fact, it's not uncommon for a wife to outlive her husband by 20 years or more. So, when planning for your retirement, it's important to acknowledge this, and put the necessary safeguards in place. Don't get trapped in a situation where you're forced to sell your assets - such as your house - to have enough money to last the rest of your life.
When constructing a retirement plan, always include margins for error to accommodate the "what if" scenarios. For my clients, this means conducting a comprehensive analysis that examines planning variables, such as investment returns, inflation, cash flow needs, and longevity assumptions. This helps minimize the possibility of outlasting your money - or having to drastically change your lifestyle because you didn't have a plan that considered all possibilities.
Taking Too Much Risk with Retirement Investments
For most people, the benchmark for investment success is, "How did my portfolio do versus the market?" But, the real question should be, "Did I benchmark my returns based on my overall retirement objectives?" (Of course, that assumes you've even set retirement goals, which many women fail to do.) Too many people lost too much money in the recent financial meltdown because they accepted an excessive amount of risk in their portfolios, largely because they were chasing the biggest return instead of focusing on what was appropriate for their situation.
To properly invest for retirement, you must know your retirement "number." That is, how much of a nest egg you need to generate the income required for your golden years. Once you've determined this number, you can calculate how much you need to save, and how much risk you should take with your money. Adopting this approach will give you a better understanding on how you're doing relative to your retirement goals, and help you buffer your portfolio when the markets aren't performing well.
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