By: Karen Schaeffer, CFP®
Published: September 20, 2018
For over 40 years we’ve been helping Federal government employees transition from their working years — also known as the accumulation phase of life — into a comfortable retirement. The future has always been murky. No one knows exactly how long they are going to live, how the markets will perform, how healthy they will be and for how long, what tax laws will change…you get the picture. Nonetheless, there are several habits common to successful retirees.
People really enjoying their golden years typically:
- Lived on less than what they made. Pension checks have always been smaller than paychecks. There is no better way to prepare for retirement than to live on less than your salary and invest the rest.
- Took full advantage of use it or lose it investment opportunities like the Thrift Savings Plan and Individual Retirement Accounts.
- Invested for growth (typically in stock mutual funds) when they still had decades of life expectancy.
- Understood the impact of taxes on their various sources of retirement income and rethought their strategies as the laws changed.
- Relied on debt less and less over time.
- Took small or no mortgages into retirement.
- Analyzed their cash flow at least annually so they knew what percentage of their income went to taxes, how much got saved/invested, how much they needed for their basic expenses and how much they liked to spend in a discretionary fashion.
- Reviewed their insurance policies and made good decisions when some protection needed to be increased and other policy limits needed to be decreased.
- Had at least four estate planning documents – wills, powers of attorney, health care directives and living wills – that reflected their current wishes.
- Had age-appropriate conversations with their loved ones to ensure that their plan would stay on track even if they themselves were no longer willing or able to make all their financial decisions.
Good news! People who incorporate these healthy habits into their decision making have a tendency to avoid the most common retirement mistakes:
- Underestimating just how expensive it can be to have time all day, every day to spend money.
- Failing to think about the impact of even low inflation when retirement can last for 20-30 years.
- Focusing too heavily on paying off the mortgage at the expense of building assets. Too often increasing costs of maintenance, utilities, taxes and insurance can’t be absorbed for long.
- Taking too much debt of any kind into retirement.
- Waiting too long to admit changes need to be made.
Even small steps toward healthy money habits can take the worrying-about-money out of retirement.
Now that sounds like a plan!
Karen P. Schaeffer, Certified Financial Planner® is the Managing Member and Co-founder of Schaeffer Financial LLC, a financial consulting firm in suburban Washington, D.C. She has been advising clients and presenting seminars for NITP for over 25 years.