Seven Retirement Blunders You Can No Longer Afford to Make

By Tim KulhanekFOXBusiness

It seems like everywhere you turn nowadays you find more “investment advice.” Before jumping into any investment plan, I suggest taking a step back and keeping things simple. Here are seven mistakes investors fall in and common-sense solutions you can use to avoid them.

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1. Failure to put proper insurance coverage in place

The Problem: It’s the “Don’t need it/can’t afford it” erroneous belief. We’ve all had the thought run through our minds. We’re healthy. Why should we pay for something we’re never going to use?

Why it’s a problem: Putting off purchasing coverage can actually end up costing a lot more in the long run. Worse yet, with some insurance (i.e., life, disability income, long-term care) failure to access coverage when you are healthy can significantly impede your access to even minimal coverage.

The Solution: Start shopping early. In order to find the most competitive coverage, I recommend working with an independent insurance agent who can help you chose the coverage that is right for you from several leading insurance companies.

2. Paying too much for basic insurance coverage

The Problem: Too many people write off the significance of overpaying for basic coverage. Often we assume a dollar here or there can be disregarded.

Why it’s a problem: Even if it’s only a few dollars a month, overpaying for coverage like home and auto, life, or Medicare supplement insurance can cost you thousands over your lifetime. Remember, insurance rates are based on large pools of people, not just you individually. Even if you have little or no claims, you can still be subject to rate increases.

The Solution: Don’t become too complacent with any one insurance provider. Do an occasional comparison and make sure your rates stay competitive.

3. Failure to be conscious of investment tax statuses

The Problem: Many investors are unaware of the tax-advantaged strategies available to them, both in and out of designated retirement accounts.

Why it’s a problem: Taxes can eat away at an investor’s return if not addressed properly.

The Solution: Hire an advisor who is knowledgeable of tax-conscious investment strategies. Have a discussion about your specific situation and ask questions about the tax implications of any recommended investment.

4. Taking too much risk

The Problem: Too many individuals in or near retirement are putting too much money at risk.

Why it’s a problem: For employer-sponsored plans, the trend toward Target Date Funds (TDFs) has mistakenly left many investors believing their accounts are being actively managed. Unfortunately, many investors who planned to retire in 2010 saw their account values drop by as much as 40% in 2008. For individuals, similar “buy and hold” strategies have left them with no other choice but to continue working and investing in risky assets beyond their intended time horizon.

The Solution: Ask your advisor what the strategy is for capital preservation during times of market stress. Look at the 3-, 5-, and 10-year return data for any investment. Ask questions like “What is the maximum drawdown?” and “How does this fit my risk tolerance?”

5. Paying too much in fees

The Problem: Investors can pay high fees for purchases they make.

Why it’s a problem: Fees probably take the largest bite out of investors’ portfolios. Some purchases charge investors upfront, while others can erode return over the long run.

The Solution: Make sure you understand all the fees, commissions, and any other charges you may incur when purchasing products recommended by your advisor.

6. Failure to properly diversify

The Problem: Investors’ narrow view of diversity prohibits them from identifying opportunities outside of the stock market.

Why it’s a problem: While investing in the stock market is important for long-term investing success, diversification has been shown to help reduce overall portfolio volatility.

The Solution: Work with an advisor who recommends more than just stock and bond portfolios.  Adding real estate or other income producing assets to your portfolio may help bring down portfolio volatility.

7. Failure to maximize social security payments

The Problem: With the decline in defined benefit pension plans there is less certainty for today’s retirees.

Why it’s a problem: Over the past two decades we have seen a monumental shift from defined benefit pension plans to defined contribution (i.e., the 401k) retirement plans. Defined benefit plans provided retirees with a specific income in retirement. Defined contribution plans do not.

The Solution: Find out how to maximize social security. Did you know that delaying your social security benefit beyond your normal retirement age to age 70 can increase the amount you will receive? Step two is to ask your advisor how you can generate guaranteed income with annuity products. It can be done, if implemented correctly.

While I do believe there are certain strategies, such as adding guarantees and certainty with fixed indexed annuities to a portfolio that can benefit nearly any investor, I do not support a “one size fits all” approach to planning.  Planning is a dynamic process; a process that is ongoing and changing, requiring advisors and investors to be open-minded to whatever strategy might benefit their unique circumstances.

Tim Kulhanek is a Chartered Retirement Plans Specialist designee and he specializes in group life, health, and disability income planning, as well as 401(k) and other retirement plan options. He currently holds licenses in Life, Health, and Accident (Nebraska), and FINRA General Securities (Series 7) with JP Turner & Co and the Investment Advisor Representative (Series 66) registration with Argentus Advisors, LLC.