By Rich Best

It is clear that this is no longer your father’s retirement. For the most part, our parents did not have to contend with increasing retirement costs and expanding longevity, and many of them didn’t have to rely solely on their own assets for lifetime income sufficiency. To put it another way, they had a little more margin for error in planning their retirement than their children and grandchildren have.

However, today, the need to secure a comfortable retirement that can last 30 years or more leaves no room for error, especially if mistakes are made early on in the process that could compound over time. That is why it is more important than ever to avoid the common traps many people make when planning their retirement.

Retirement Planning Trap #1: Not having a clear vision of retirement

There is much more to preparing for retirement today than setting a target date (i.e., age 65) and assigning a number (i.e., $100,000 a year). The problem is they are just numbers, which has the effect of reducing the significance of planning for your final life stage to an economic finish line. What happens after you retire is much more important than getting there. How will you spend your time and money in retirement? How will you make the transition from work to freedom? What do you want to accomplish? You may be financially prepared for retirement, but will you be emotionally prepared? Having a clear vision of your retirement ambitions will not only generate the motivation to stick to your investment strategy, it will help ensure that you obtain the fulfillment that eludes many retirees.

Retirement Planning Trap #2: Underestimating the Cost of Retirement

Too much emphasis today is placed on “your number,” that is, what you calculate to be the amount of capital you will need to sustain your lifestyle in retirement. In too many cases, that number is based on some faulty assumptions that could lead to problems down the road. One common assumption is that living expenses should decrease in retirement. Yet, many people fail to consider the rising cost of health care, which now averages close to $400,000 for the average retired couple, and that can increase as life spans increase. An increasing number of retirees are sandwiched between subsidizing their children and taking care of their aging parents. If either spouse requires long-term care, it could increase costs by tens of thousands a year.

Retirement Planning Trap #3: Focusing on Returns Rather Than Risk

Many people find out when it’s too late that they really have no control over the performance of their investments. No one can predict the direction of the markets or how any particular stock or fund will perform. However, investors continue to focus on investment returns when, instead, they should be focused on risks. The reason is that risks are certain – we know they will occur – but they can be managed. For instance, it is an absolute certainty the current bull market will be followed by a bear market. We can’t know when it will occur or its duration, but it will happen. We know that interest rates and inflation, which have been at historic lows, will increase. All of these risks can be mitigated through sound investment planning so their impact is minimized. A well-diversified portfolio consisting of assets with low correlation with one another ensures more stability and opportunities to capture returns whenever and wherever they occur.

Retirement Planning Trap #4: Trying to Go It Alone

Business owners are very smart people; however, they are particularly disadvantaged when it comes to acquiring the essential financial knowledge needed to plan and manage their wealth. Most business owners simply don’t have the time, temperament or training to personally navigate their financial lives.

When that occurs with any key business function within their business, smart business owners will typically outsource that function or hire someone to perform it. It should be no different with the critical, personal function of managing their wealth.

Most business owners work with an accountant and an insurance broker and they might even have a financial advisor – each focused in their own area of expertise, but, typically, with no coordination among them. If anything, this can make the pieces of the financial puzzle even more disjointed and confusing, much to the detriment of the business owner. As their earnings increase and they begin accumulating wealth, the number of puzzle pieces increases and the puzzle gets more complex. Ultimately, this will require a collaborative effort by a cast of financial professionals led by an independent wealth manager or financial advisor to facilitate and coordinate the process, and who is ultimately responsible for ensuring that all of the pieces of the puzzle fit tightly together.1


Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites.

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The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC