The conversation highlights critical mistakes to avoid for a secure retirement. Key points include knowing your retirement numbers, regularly adjusting your retirement plan, and avoiding the misuse of retirement accounts. Understanding your desired annual retirement income, regularly reviewing and adjusting your savings and investment strategies, and preventing early withdrawals from retirement accounts are essential to staying retired and ensuring financial stability throughout retirement.

Transcript:

Austin, retirement isn’t exactly a one-way door, but no one wants to enter retirement and then have to try to reenter the workforce after.

There are all sorts of risks, you know, there’s skill loss, people may be less capable physically or mentally after a long break.

So the key question is, what are the worst retirement mistakes that people make that they need to avoid at all costs?

Yeah, if you’re looking to retire, you want to stay retired.

You don’t want to have to come out of retirement.

One way to do that is by avoiding the most common mistakes that can threaten that retirement and cut your early retirement short.

So number one is not knowing your numbers.

This one is just fundamental.

You really need to understand how much you need to retire.

And one way to do that is to start by calculating your desired annual retirement income.

And we see that that averages about 70% to 80% of your pre-retirement income.

It does go down a little bit because you have fewer expenses associated with maybe commuting to work or eating out for lunch or you’re driving your car less or buying less professional clothing.

So for example, if you need to earn $100,000 a year as your annual income, aim for $70,000 to $80,000 a year in retirement, and then use retirement calculators to project if your current savings are sufficient to cover that.

And we recommend considering a flexible 3% to 5% a year annual withdrawal rate.

Mistake number two is lack of strategic planning.

You need to regularly review and adjust your retirement plan.

The world is dynamic and your assumptions when you start a retirement might have changed when you’re in it.

So if your goal is to have a million dollars by retirement and you’re only on track for $700,000, you need to increase your contributions.

You need to look at where you want to be and increase your contributions to get there and constantly readjust as you go.

Maybe your savings rate needs to go up.

Maybe your savings rate is actually too high and you feel like you can pull it back and enjoy life a little bit more today.

You also need to consider reallocating investments into higher yield options or cutting expenses to boost savings.

So retirement is not a rigid plan.

You need to be dynamic and you need to do that exercise annually.

So the lack of strategic planning can really threaten your retirement.

Number three is misusing retirement accounts.

You need to avoid early withdrawals from your retirement accounts to prevent penalties and loss of affording your compounding growth.

So for instance, if withdrawing $10,000 from a 401k before age 59 and a half, that can incur a 10% penalty plus taxes.

That significantly reduces the amount that you will have in retirement.

Instead, we recommend building an emergency fund of three to six months of expenses outside of your retirement accounts and then when you enter retirement you start to draw your cash accounts and those reserves first.

You want those retirement accounts to continue running, to continue compounding.

Those are the best assets you have in retirement.

Let them run and let them get as big as possible and work for you.

Don’t stop that early compounding.

Additionally, if you have additional income, like maybe a rental property or a part-time job, live off of that first.

If you get Social Security, try to live off that as long as you can.

The bottom line is with your tax-advantaged accounts, let them run as long as possible for your benefit before you withdraw them to avoid penalty and to avoid stopping that compounding in your favor needlessly early.

So there you have it.

Three things: know your retirement numbers, focus on strategic planning, and don’t misuse retirement accounts.

Thank you for that information, Austin.

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