Your entire life, you’ve probably worked diligently to save and plan for your retirement. You may have even laid out detailed plans in your retirement plan and make your retirement funds last for the rest of your life. However, oftentimes there are unexpected pitfalls that can make your retirement plans fall apart. When you’re planning your retirement, you need to be aware of these common issues that can jeopardize everything you’ve worked so hard for.
At REAP Financial, we want to help you protect your finances and maintain your dream lifestyle in retirement. We’ve collected the five most common issues that can take your retirement plan off track! Make sure you read them and watch out for them in your retirement plans!
1. Purchasing a Second Home
During our working years, it’s a common dream to want a second home, whether a vacation home or something close to family or loved ones. While this can be an amazing way to enjoy your wealth, you should consider it carefully before purchasing a second home. Owning a second home can be an enormous burden on your finances in retirement. Just the mortgage can be a large investment!
Even if you’re lucky enough to be able to pay off the mortgage, there are other ongoing expenses associated with owning a home, and they can add up over time! You’ll always have to pay the property taxes, as well as any upkeep and maintenance fees. The upkeep can be especially expensive if you are not using this second home regularly. If you spend lots of time away from the property, you’ll likely need to hire a property management company or individual to manage it in your absence.
If you decide to purchase a second home, you need to plan for all of the expenses that come with that home. Beyond that, you need to build margin into your retirement plan to cover all the unexpected expenses, like repairs, that always come up with a home. If you don’t do this, you may find yourself pulling too much from your portfolio to fund the home, putting the rest of your retirement spending at risk. Of course, a home is an asset you can count on, but you want to make sure that if it’s a part of your retirement plan, you plan for those expenses accordingly.
2. Taking on Debt
When you’re working towards retirement, you need to be trying to get your expenses as low as possible. This means paying close attention to your budget, since it is the most important number in your retirement plan. Yes, that’s right! The most important element of your retirement plan isn’t your rate of return, the inflation rate, or your social security benefit; it is your budget and how much money you need to spend every month to maintain your ideal lifestyle in retirement.
This is why taking on debt can be such a hit to your retirement plan. Even small payments, like $500 or $1000 per month, can raise your expenses immensely and make the difference between being able to reach your desired lifestyle and falling off-track. In summary, taking on debt can put a major strain on your portfolio, so think carefully before you consider managing debt in retirement.
3. Starting a New Business
Once you’re retired, you feel the pull to take everything you’ve learned throughout the years and start a new business. While this can be really exciting, you need to think about how it could impact your retirement plan and be careful. In many cases, it can take a lot of upfront capital to get a business up and running. It may be years before a business is cash-flow positive. There’s always the risk that the business ultimately doesn’t take off.
Consider all of this before launching a new business! You need to be wise in terms of what type of business and what industry you want to be in, so you can plan carefully for those capital expenditures. This will be critical for protecting your well-earned retirement, while you work to get your new business off the ground.
4. Helping Too Much
This one can be a sensitive issue, but it’s important to be mindful of it all the same. Sometimes family members, friends, or kids, who you’ve helped out in the past, can remain on your “payroll.” This could be as simple as giving them a little cash to help out every once in a while or paying for a big regular expense, such as rent, a car payment, or insurance. Those types of expenses, while they might seem marginal at the moment, can really add up over time and threaten your retirement savings.
As we’ve said, your budget is the most important part of your retirement, and expenses like these can seriously add up. Although it is a natural impulse to help our loved ones, especially our kids, you have to be mindful of helping too much. Once they get in the habit of receiving your financial help, it can be very hard to stop those payments. In some cases, they may even ask for more of your help, so be very careful with helping too much.
If you’re having a hard time getting friends or family off your payroll, we’ve found it can be helpful to reframe the issue. Mentioning that continuing to help them could land you in their house later in life can be an effective way to “wake them up” and get them to take control of their own expenses.
5. No Spending Plan
When you reach near retirement and you’re likely at your highest earning potential, you’re probably not living on a budget because you don’t need to. However, when you retire, you have to live on a budget, so you can know what you can spend confidently every month without depleting your retirement. Of course, this can include travel, food, and fun, but it needs to be within limits that are reasonable for your retirement plan. Having a budget will allow you to spend with confidence and enjoy your retirement to the fullest!
There are many more things you can do to prepare for an amazing retirement! For more information on how to craft your financial future and maximize your retirement, visit reapfinancial.com. On our website homepage, you can download a free copy of “10 Retirement Tips: Essentials for Harvesting a Fulfilling Financial Future.” With that, you’ll be further on your way to building your best retirement with REAP Financial!
Financial Advisors and Retirement Planners in Austin & Georgetown, Texas
At REAP Financial, we are more than just an investment firm. We are your comprehensive partners in managing every aspect of your financial landscape. From estate planning to tax mitigation, charitable planning, and much more, our expertise is tailored to meet the intricate needs of high net worth families. We specialize in the areas that matter most to you: Wealth Preservation, Efficient Tax Planning, Estate Planning, Asset Protection, and Strategic Charitable Giving. Our Georgetown and Austin -based financial planning team is dedicated to addressing your specific needs in each of these areas. Explore our services below to see how we can assist you in securing your financial future:
- Investment Planning: Crafting your unique investment strategy.
- Estate Planning: Ensuring your legacy is preserved and passed on efficiently.
- Tax Mitigation: Minimizing your tax burden through strategic planning.
- Asset Protection Planning: Safeguarding your wealth from unforeseen risks.
- Business Succession Planning: Preparing your business for a smooth transition.
- Retirement Planning: Designing a comfortable and secure retirement.
- Educational Family Planning: Preparing your heirs with the knowledge for financial success.
- Charitable Planning: Aligning your philanthropic vision with your financial goals.