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Mistake #1: Underspending
I’ve had the opportunity to speak with many individuals in their late 70s or early 80s about their retirement. Often, they wish they would have spent more money at the beginning of their retirement. As they age, they may still have a lot of money, but their desire to consume has decreased. Whether that is due to their health or other reasons, they just aren’t that interested in spending their money.
The most common reason people don’t spend earlier in retirement is that they do not have a retirement or financial plan in place. Without these plans, they do not have the peace of mind that what they’ve accumulated is enough to sustain their lifestyle. Simply put, they are worried that they will run out of money.
The cure, make sure that you have a retirement plan in place. That way, you know that you will be okay in the long run.
Mistake #2: Not Occupying Your Time
The second mistake is using your newly found free time in retirement and spending it on studying the stock market.
Now do not get me wrong. It is very important to know how your portfolio is performing and how it is structured. However, I commonly see that if you are retiring and do not have something to keep you occupied, such as traveling, golf, or spending time with grandkids, you may look at your portfolio every day. Whether that is researching stocks or having B.N.N. on in the background, that can become more stressful than when you were working.
If you’re going to retire, make sure that you’re retiring to something and not adding more stress in the time of your life that you should be enjoying.
Mistake #3: Investing Overly Conservative
The third mistake is becoming overly conservative with your retirement portfolio.
Let us say that you’re 60 years old and you have a $1,000,000 portfolio. If you were to break out the $1,000,000, you might spend a quarter of it in your 60s, a quarter in your 70s, 80s, and 90s.
What I see many people doing once they retire is they take their whole portfolio and put it into something super conservative. They may put it in a GIC that earns them 2%. After one year, they’ll have $1,020,000. The problem today with being overly conservative is that inflation is so high. With inflation at 4%, you will need $1,040,000 to buy the same amount of things next year that you can buy today. In this example, you are guaranteed to lose $20,000 in purchasing power.
Should the money you’re going to need 20, 30 years down the road be invested the same way as the money you will need over the next ten years? Probably not.
It makes sense to get a bit more conservative in retirement, but you still have a 20 to 30-year outlook before spending your entire portfolio. You do not want to be overly conservative because the issue today is with inflation rates so high you are guaranteeing a loss.