By Nino Pavan, J.D., CFP®
As a longtime advisor at Financial Designs working with many SoCal Edison and SoCal Gas company employees, I see the same financial mistakes over and over again.
To help your plan go as intended, I assembled the 5 mistakes I see most often and how you can avoid them. Let’s take a look.
1. Failure to Maximize 401(k) Contributions
Contributing the maximum amount allowed to workplace 401(k) plans is one of the better tax-advantaged ways to save for retirement. But, unfortunately, over the years, I’ve seen a lot of SoCal Edison and SoCal Gas employees fail to take full advantage of their 401(k)s.
Here are the potential consequences they face:
- Decreased retirement income: By not contributing the full amount possible to your 401(k), you might have to work during your retirement years, and/or live on a lower income.
- Risk of outliving your savings: If you live a long life and you didn’t contribute the maximum amount to your 401(k) plan, you risk running out of money during your retirement years.
- Less flexibility: If you don’t save enough money in your 401(k) plan, you’re limiting your opportunities to do the things you love in retirement.
- More stress: Not saving enough for your retirement can lead to constant worry and regret.
2. Retiring Too Soon
This one breaks my heart. I see it all the time.
Typically, people who retire too soon make one (or all!) of the following financial mistakes:
- Not saving enough money: There’s no other way to say this: if you don’t have enough money saved for retirement, you’re putting yourself at risk.
- Not planning for healthcare costs: The older you get, the more potential health issues you face; it’s just part of life. But if you don’t plan for higher healthcare costs in retirement, you could get yourself in financial trouble.
- Claiming Social Security benefits early: The earlier you claim your Social Security benefits, the lower your monthly benefit payment will be. For example, if you claim your benefits at age 62, your monthly payment might be $1,700. But if you wait to claim your benefits until age 67, your monthly payment will increase substantially. And if you wait to claim your benefits until age 70, your monthly payment will increase even more.
3. Not Reassessing Risk As Retirement Gets Closer
Investment risk tolerance can get tricky. Basically, your risk tolerance is your ability to withstand financial loss. The key to managing investment risk is to monitor your investments carefully.
Financial risk in your investment portfolio should be reviewed at least once per year. This is especially true as you get closer to your retirement years, and a mistake I see SoCal Edison and SoCal Gas employees make all the time.
The closer you get to retirement, your investment risk must decrease. Adjust your risk tolerance as often as possible to stay on track to meet your retirement goals. Otherwise, you’re putting yourself in danger of suffering a substantial financial loss during retirement.
4. Underestimating How Much They’ll Need Each Month in Retirement
Here’s another retirement mistake I see quite frequently. Way too many people miscalculate how much they’ll need on a monthly basis during retirement.
Here are the most common errors I see:
- Medical expenses: The amount you pay for healthcare in your 40s increases dramatically when you reach age 67 and beyond. Adjust your monthly estimate accordingly.
- Inflation: Prices rise over time—they just do. And if you don’t take that into account, you’re asking for trouble.
- Lifestyle: Taking a two-week vacation once a year will probably shift to more frequent travel. Don’t forget to include travel expenses in your projected budget.
- Taxes: You still have to pay taxes in retirement. Sad, but true.
The main thing to remember here is that your monthly expenses will be different in retirement.
5. Carrying Significant Debt Into Retirement
Here’s another really common mistake.
If you retire with a lot of debt (e.g., credit cards, car loans), your monthly payments against those debts could take away a major slice of your retirement income.
The goal is to manage your debt before you retire so your desired lifestyle during retirement doesn’t have to take a back seat to your debt payments.
The bottom line is that you can avoid all the mistakes described above by enlisting the help of an experienced financial advisor. They’ll know exactly how to point you in the right direction.
Avoid These Mistakes: Reach Out for Help
Here at Financial Designs, we want to help you avoid all financial pitfalls and see everything you’re looking forward to going as planned. We’ll help you build a customized financial plan that aligns with your unique goals and mindset.
If you care about your financial future, get in touch today! To schedule a no-obligation consultation, call (909) 626 1642 or email fdc@fdcadvisors.com.
About Nino
Nino Pavan is President and a CERTIFIED FINANCIAL PLANNER™ professional at Financial Designs, a financial planning firm in Claremont, California, with the mission of enabling individuals and families to financially prepare for and confidently enjoy their retirement years through goal-centered planning. With more than 25 years in the financial services industry helping families navigate the retirement process, Nino is thankful for the opportunity to serve his clients by making the retirement process a stress-free process; he worries about their money so they don’t have to. Nino holds a Bachelor of Science in Telecommunications Management from DeVry Institute of Technology and a law degree from the University of Southern California, and is a contributing advisor to Kiplinger. In addition to being a CERTIFIED FINANCIAL PLANNER™ professional and Investment Advisor Representative, Nino has passed the Series 7, 24, and 63 securities exams and holds life and disability insurance licenses in the state of California. He also conducts retirement and estate planning workshops for employees of major California companies. Outside of the office, Nino enjoys sports (regular and fantasy), traveling (specifically tropical destinations), walking, tennis, pickleball, church activities, and spending time with his wife, Sherry, and their two children, Derek and Sara. To learn more about Nino, connect with him on LinkedIn.
