Here are a few mistakes to avoid
by Arif M. Halaby, CEP
Retirement should be a time of reflection and enjoyment. You may reflect on the years of your life spent working and raising your family, while enjoying your children, grandchildren, and utilizing savings you have accumulated all the years. So, “where is the problem?” you ask. Well, some of us are much too generous early on in our golden years and end up nearly gifting our way to the poorhouse! If being generous is part of your plan and you want to keep this from happening, avoid these mistakes and retirement just may turn out the way you planned it.
First up is that one (sometimes two) of your offspring who always telephones just “one last time.” Usually it’s for one last dollar donation. Sometimes it comes with a promise to repay, or it’s just your exercise of guilt repayment for parenting shortfalls of decades past. In any case, giving your kids more and more money up to and through retirement is an enormous mistake. It can and will have a detrimental impact on your ability to enjoy the next 20-30 plus years of retirement comfortably.
If you must help, set a monthly limit of help for your children that comes directly out of your monthly income. This way, you don’t spend down your retirement assets to “help.” Also, if you must give, reduce the amount that particular child receives from their would-be inheritance. Make it clear to him or her what is taking place. They are trading gratification today for potentially greater future value. I suggest having it written in your Revocable Living Trust. Whatever you decide, putting something in writing seems to make things stick a bit more.
The next biggest mistake I have seen is when the newly retired couple goes out and spends more than they should on a new RV or boat, especially when it was never properly budgeted for originally. Another is to take the entire family on a week-long cruise or a personal around-the-world trip. I don’t think it is ever an issue for you to spend money on your friends and family. I have seen retirees make this an annual or bi-annual trip. Just remember that these experiences come with a hefty price tag, so incorporate them in your retirement budget.
Make sure your income is protected, and if possible, increases every year or two. Design a higher income strategy that you can’t outlive. Make sure it includes principal protection, reasonable gains, and lasts for all your retirement years. This can help keep up with inflation, as well as other rising retirement costs. This is what I see as the key difference between living the lifestyle you planned for, and just getting by, waiting for the end.
Accelerating your children’s inheritance is your choice. Just know that in many cases there are more cost- and tax-efficient ways of achieving this than just pulling additional money from your retirement assets. But whatever you decide, remember – you have worked, sacrificed, and saved your hard-earned money, so spend it the way you see fit. Just make sure you take care of yourself before your heirs.
Arif Halaby is a Certified Estate Planner in California and President/CEO of Total Financial Solutions, Inc., a financial and insurance services company in Santa Clarita that prides itself in protecting principal, eliminating fees, and designing higher income strategies. 661-753-9683