Eight Mistakes That Can Upend Your Retirement

Pursuing your retirement dreams is challenging enough without making some common, and very avoidable, mistakes. Here are eight big mistakes to steer clear of, if possible.

1. No Strategy: Yes, the biggest mistake is having no strategy at all. Without a strategy, you may have no goals, leaving you no way of knowing how you’ll get there—and if you’ve even arrived. Creating a strategy may increase your potential for success, both before and after retirement.
2. Frequent Trading: Chasing “hot” investments often leads to despair. Create an asset allocation strategy that is properly diversified to reflect your objectives, risk tolerance, and time horizon; then make adjustments based on changes in your personal situation, not due to market ups and downs.¹
3. Not Maximizing Tax-Deferred Savings: Workers have tax-advantaged ways to save for retirement. Not participating in your employer’s 401(k) may be a mistake, especially when you’re passing up free money in the form of employer-matching contributions.²
4. Prioritizing College Funding over Retirement: Your kids’ college education is important, but you may not want to sacrifice your retirement for it. Remember, you can get loans and grants for college, but you can’t for your retirement.
5. Overlooking Healthcare Costs: Extended care may be an expense that can undermine your financial strategy for retirement if you don’t prepare for it.
6. Not Adjusting Your Investment Approach Well Before Retirement: The last thing your retirement portfolio can afford is a sharp fall in stock prices and a sustained bear market at the moment you’re ready to stop working. Consider adjusting your asset allocation in advance of tapping your savings so you’re not selling stocks when prices are depressed.³
7. Retiring with Too Much Debt: If too much debt is bad when you’re making money, it can be deadly when you’re living in retirement. Consider managing or reducing your debt level before you retire.
8. It’s Not Only About Money: Above all, a rewarding retirement requires good health, so maintain a healthy diet, exercise regularly, stay socially involved, and remain intellectually active.

Warren Buffet on Volatility

If you’re concerned about today’s market volatility, you might take some comfort from one of my favorite quotes by Warren Buffett.

“I would tell them don’t watch the market closely,” said the Oracle of Omaha.

Buffett’s quote was from 2016 when the markets were wrestling with Brexit, China’s economy, and, coincidentally, the Federal Reserve’s interest rate policy.

Fast forward to 2022, and rising bond yields, Federal Reserve uncertainty, and escalating tensions on the Ukrainian-Russian border all have taken turns rattling the markets.

Markets move in cycles, but after a period of solid performance like 2021, it’s easy to forget that pullbacks, corrections, and even bear markets happen from time to time. Some market watchers would even suggest down cycles are healthy in the long run.

But if you find yourself thinking, “this time, it’s different,” we should talk. Downtrends can be unnerving, and sometimes, they may cause you to rethink how you feel about market risk.

The Investment Risk No One’s Ever Heard Of

Knowledgeable investors are aware that investing in the capital markets presents any number of risks, including interest rate risk, company risk, and market risk. Risk is an inseparable companion to the potential for long-term growth. Some of the investment risks we face can be mitigated through diversification.¹

As an investor, you face another, lesser-known risk for which the market does not compensate you, nor can it be easily reduced through diversification. Yet, it may be the biggest challenge to the sustainability of your retirement income.

This risk is called the sequence of returns risk.

The sequence of returns risk refers to the uncertainty of the order of returns an investor will receive over an extended period of time. As Milton Friedman once observed, you should, “never try to walk across a river just because it has an average depth of four feet.”²

Sequence of Returns

Mr. Freidman’s point was that averages may hide dangerous possibilities. This is especially true with the stock market. You may be comfortable that the market will deliver its historical average return over the long-term, but you can never know when you will be receiving the varying positive and negative returns that comprise the average. The order in which you receive these returns can make a big difference.

For instance, a hypothetical market decline of 30% is not to be unexpected. However, would you rather experience this decline when you have relatively small retirement savings or at the moment you are ready to retire – when your savings may never be more valuable? Without a doubt, the former scenario is preferable, but the timing of that large potential decline is out of your control.

Timing, Timing, Timing

The sequence of returns risk is especially problematic while you are in retirement. Down years, in combination with portfolio withdrawals taken to provide retirement income, have the potential to seriously damage the ability of your savings to recover sufficiently, even as the markets fully rebound.

If you are nearing retirement or already in retirement, it’s time to give serious consideration to the “sequence of returns risk” and ask questions about how you can better manage your portfolio.

How to Support Black-Owned Businesses

“Every February, Americans celebrate Black History Month. In addition to honoring the accomplishments of Black Americans past and present, many clients often ask if they can do more. The answer is yes! By supporting Black-owned businesses you can further show your support for the Black community while improving your local economy at the same time.

Here’s how to get started:”

• Get social: Local businesses depend on social media for much of their advertising. Make sure to sing the digital praises of your favorite Black-owned business next time you’re online.
• Involve local government: Your local government can help Black-owned businesses be more accessible to the public with wider sidewalks or ramps. Try approaching your town council or local business association to encourage infrastructure changes that can go a long way.
• Become a regular: Businesses thrive on consistency, especially right now. Make spending at your favorite Black-owned spot a regular event to increase revenue and give the owner a confidence boost.

Supporting Black-owned businesses in your area is a wonderful way to keep your community diverse, local entrepreneurs thriving, and the economy strong. Let us know if you’re looking for more information on supporting local businesses or want to chat. We’re always happy to help.”