The Biggest Mistakes We See Pre-Retirees Make

The Biggest Mistakes We See Pre-Retirees Make

By Scott D Abrahamson, CFP® and Chris Pawlowski, CFP®, CRPC®, APMA®

Life gets busy, and it can be easy to put off the things that seem far away, such as retirement. As a pre-retiree, now is the time to make sure you have a solid retirement plan in place to avoid making mistakes that may cost you dearly in the future. 

The financial actions you take during your pre-retirement years can either set you up for success or failure. Sometimes what you don’t know can hurt you, which is why we have put together this list of some of the biggest mistakes we see pre-retirees make. Avoiding these can set you on the right path to realizing your financial goals and living your ideal retirement.  

Not Saving Early Enough

There’s a reason you hear a lot about compound interest—it’s powerful! As you build your savings, the interest you gain earns more interest the longer the money sits there. Therefore, the earlier you start saving, the longer you have for your savings to compound. A common mistake that pre-retirees make is starting their savings journey much later than they should have. Even if it is just small amounts of money saved early on, the compounding effect will be worth it in the long run. 

For example, if you start saving $400 per month at age 25, you will have nearly $1 million saved by age 65 (assuming a 7% annual investment return). (1) If you don’t start until age 35, you’ll have to save around twice as much to reach $1 million by age 65.

Using Retirement Funds to Pay for College

This is a common mistake that pre-retirees make early on, thinking that they will be able to make up for the money taken out of their retirement accounts to pay for their children’s college costs. While it is a great goal to want to pay for your children’s college education, you have to weigh the consequences of what it could do to your retirement. 

If you deplete a good chunk of your retirement funds early on, you are just setting yourself up for a different type of financial strain that cannot be financed. Remember, you can always borrow for college, but you can’t borrow for retirement. If you still want to help your kids out, walk them through the process of applying for scholarships, grants, or financial aid, and encourage them to find a part-time job while they are studying. 

Investing Too Aggressively at or Near the Point of Retirement

Unless you’re planning to work part-time, you don’t earn a paycheck in retirement. Since you have to rely on the investments and savings you’ve accumulated during your working years, the last thing you want is the markets hurting your chances of a comfortable retirement. 

When you first start out accumulating wealth you have a long time to invest and most investors can be more aggressive when beginning to save for retirement. However, as you get closer to retirement, you may want to adjust your investment allocations to be less aggressive. Nobody knows what the market is going to do, but we do know that as retirement approaches, you’ll have less time to recover from a downturn in the market.

Not Having a Plan for Your Retirement Lifestyle

So much of retirement planning is based on numbers. Will you have enough money? How will the market affect your investments? But have you thought about what you want your life to look like once you cross that career finish line? 

Free time is a major perk of retirement, but when you go from working full-time to not working at all, it can be a shock to your system. Saying goodbye to your career, your colleagues, and your routines can cause anxiety and depression. But if you plan ahead to fill your time with activities that will fulfill you, you can avoid the negative emotions that can come with this life transition. 

Achieve a more fulfilling retirement by staying active, pursuing new hobbies, or volunteering, which has a multitude of health benefits—such as broadening your social network, keeping your mind engaged, and even lowering blood pressure.

The takeaway here is to be intentional about your time in retirement. Make a list of things you want to do, places you want to go, and people you want to spend time with, and then strategically map out the details so your goals become a reality. It’s easy to lose your identity when you say goodbye to your career, but filling your time and venturing out into new territory will help you build a new identity and give you something to look forward to.

How to Avoid Mistakes

Retirement planning can be a complex process with lots of room for error. But this is one area you want to get right. So, how do you avoid making mistakes? One of the best ways is to partner with an experienced financial advisor who can educate and guide you down the correct path to your ideal retirement. 

At SpringSource Wealth Advisors, our mission is to empower families to reach financial freedom through exceptional, caring service. We invite you to set up an in-person meeting today or call (503) 714-9531 or email scott@springsourcewealth.com to get in touch.

About Scott

Scott Abrahamson is Owner and Wealth Advisor at SpringSource Wealth Advisors, a fee-only fiduciary Wealth Advisor with a passion for making the retirement planning process simple. With their goals-based planning approach, SpringSource helps individuals, families, and small businesses make smart financial decisions and realize the core value of their finances: living an abundant life. As an independent CERTIFIED FINANCIAL PLANNER™ professional with over 20 years of experience, Scott’s mission is to empower clients to reach financial freedom through exceptional, caring service. He takes time to explore each client’s core values about money and partners with them to formulate clear goals based on those values. The result is a powerful, personalized road map designed to help each client successfully navigate every life phase. Scott loves watching clients experience a sense of peace and financial independence through smart financial planning over time.

Outside of the office, he enjoys playing and coaching sports, boating, outdoor activities, spending time with family, and serving in the community. To learn more about Scott, connect with him on LinkedIn.

About Chris

Chris Pawlowski is Wealth Advisor at SpringSource Wealth Advisors, a fee-only fiduciary Wealth Advisor with a passion for making the retirement planning process simple. With their goals-based planning approach, SpringSource helps individuals, families, and small businesses make smart financial decisions and realize the core value of their finances: living an abundant life. Since entering the financial planning industry in early 2013, Chris enjoys understanding his client’s goals and working hard to formulate effective strategies for them. With the technical experience in the planning industry that puts him in a strong position to help clients through every life stage, Chris desires to empower families to reach financial freedom through exceptional, caring service.

As a Veteran who served in both the U.S. Army and the CA Air National Guard, Chris has a special passion for helping his brothers and sisters at arms in pursuing their financial goals. He holds the CFP®, Chartered Retirement Planning CounselorSM (CRPC®), and Accredited Portfolio Management AdvisorSM (APMA®) designations. Outside of the office, Chris devotes his time to his beautiful wife, Yvette, his church, and his hobbies, which include backpacking, kayaking, hiking, and enjoying time with his family and friends. He also partners with Hope Worldwide, a faith-based charity organization in Portland, to serve local families in need. To learn more about Chris, connect with him on LinkedIn.

Information provided herein is provided by SpringSource Wealth Advisors, LLC. This information is for general informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Information was compiled from third-party sources believed to be reliable and accurate but cannot be guaranteed. Investment advisory services are offered through Wellspring Advisors, Inc., an SEC Registered Investment Advisor. Neither SpringSource Wealth Advisors, LLC  nor Wellspring Advisors, Inc render any legal, accounting, or tax advice. All investments involve risk, are not guaranteed, and may lose value. We recommend that all investors consult with a qualified adviser to assess your personal situation before implementing any strategy.

Please remember to contact your advisor when your financial circumstances or objectives change. Your advisor may recommend adjustments to your financial planning and investment strategies to better suit your current situation.

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(1) https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator