Escondido Retirement Planning

Avoid These 5 Common Mistakes

Retirement planning is much more than just contributing to your employer sponsored 401(k) plan. While this is a good start, it only is one small piece to a much larger retirement income strategy. You are never too young (or too old) to start planning for your retirement. The worst thing you can do is just assume that everything will be fine and that when the time comes you'll have enough money. This type of thinking can lead you to a retirement with way less money than you would've hoped for, or even worse, a scenario where you can't retire until well over 65.

Escondido families and professionals face unique challenges (cost of living, taxes, and healthcare costs). That's why working with a financial planner in Escondido can help you fine tune your retirement plan.

1. Waiting Too Long to Start Savings

The two most powerful tools in the world of investing our Time and Compounding Interest. The sooner you can start savings, no matter the amount, the greater the long-term impact will be. That's why it is so important to start savings early. If your employer offers a defined contribution plan like a 401(k), you should definitely take advantage of that and set your retirement savings on auto-pilot by setting up payroll deductions. This type of savings is extremely powerful because it puts savings first before spending. And if your employer matches your contributions up to a certain point - all the better!

2. Not Having a Tax-Efficient Strategy

There are two basic types of retirement accounts - tax-deferred and taxed. Tax-deferred accounts like your 401(k) and Traditional IRA, let you contribute to the plan up to a certain point and all you contributions reduce your taxable income. You defer your tax payments to the future when you withdrawal the funds in retirement. Taxed accounts, like a Roth IRA, are the opposite. You contribute to the plan with after tax dollars. So, when you withdraw your funds in the future, the principal amount can be withdrawn tax free and you only owe ordinary income tax on the gains of the retirement account. What you need to consider and plan for is whether you expect to be in a higher tax bracket or lower tax bracket when you plan to start withdrawing funds from your retirement account. If you expect to be in a lower bracket at retirement you would want to contribute to a tax-deferred account. If you expect to be earning a ton well into retirement, you would want to contribute to a taxed retirement account so you don't have to pay taxes on the principal in the future when you're making bank!

3. Underestimating Healthcare and Long-Term Care Costs

Healthcare costs increase on an annual basis more than almost any other personal expense. Well above the rate of inflation. Nearly 70% of people in the US over the age of 65 will need some form of Long Term Care. The cost for a nursing home stay in California can be over $100k a year! That being said, these types of expenses can't just be figured out when they occur, they need to be diligently planned for. You wouldn't want the burden of having to pay for these expenses to fall to your children or grandchildren. That's not the type of Legacy you want to leave. The best time to look into Long Term Care Insurance is in your mid-50s to mid-60s when your premiums will be affordable and you're likely to get approved. Retirement Healthcare Planning needs to be in the foundation of your plan.

4. Failing to Diversify Investments

Having a diversified retirement portfolio is extremely important to be able to weather economic uncertainty. You wouldn't want to put yourself in a position to be over invested in one stock or one sector just to see that investment drop significantly and your retirement savings wiped out. It's important to balance growth, income, and safety. Your retirement account should be positioned for the long run and an account where you do very little trading and almost all investing. This means that you're invested heavily in broad market indexes so you avoid the risk of single-company positions and reduce the volatility of your account.

5. Not Working with a Professional Advisor

Thinking you can do it on your own or that you'll figure it out later can be extremely risky. There's so much value in working with a retirement planner who understands Escondido and San Diego County needs. An advisor can help you design a plan to set you up for success. They can help you maximize your Social Security income, design save and reliable investment strategies, and keep you on track.

Conclusion

Use this checklist to avoid retirement planning set backs. Know that you don't have to do it alone. Contact Wismar Financial for a complimentary Escondido retirement planning consultation.