By Matt Fry
At Shelton Financial we’re honored to count many teachers as clients, helping them work toward peace of mind and financial independence. Unfortunately, we’ve noticed that many of them make the same mistakes in handling their money. We’ve compiled a list here, as well as our thoughts on how to avoid these mistakes, so you can avoid these pitfalls in your investments.
Not Planning (Or Sticking To) A Budget
Many people who can’t get ahead financially skip this important step. Though it may seem like a chore, it’s important to know how much money you have coming in, and also what you’re spending over the same period. If you have a deficit, then you need to look for places to cut back on your spending. Doing so can help you avoid falling into debt, and let you find the money you need to save for the future.
Not Creating A Retirement Plan
If you’re in your 20s, 30s, or 40s retirement likely seems many years into the future. However, investing money that can grow for many decades is one of the best ways you can enjoy a comfortable retirement even if you never earn a large salary. Though it may seem hard to find money to save for retirement, put aside whatever you can spare into a workplace retirement plan.
Skipping Properly Researching All Their Social Security Benefits
Many of us know we’re eligible for Social Security retirement benefits when we stop working, but did you know the longer you wait to collect benefits, the more money you may receive? There are many variables in collecting benefits, so be sure to speak with a financial advisor and/or explore the Social Security website before you start collecting money.
Not Doing Their Homework On All Their Different Pension Options
Though pensions are designed to provide lifetime income in retirement, some allow you to take a lump-sum payment. Another option is for the pension to continue paying to a surviving spouse after the pensioner passes away. As you near retirement, be sure to explore your options so you don’t make a hasty decision that doesn’t fit your needs.
Not Properly Coordinating And Integrating Pension And Social Security Benefits
Similar to a pension, Social Security benefits are designed to pay out in retirement as long as you live. Check with the Social Security Administration to estimate your monthly payment, then use that information to choose the best pension option for you.
Not Understanding Their Risk Tolerance And Investment Objectives
The stock market has its periods of ups and downs. That volatility often leads investors to panic and sell when the market is down, locking in investment losses. You can say today you won’t sell if the market declines, but sometimes emotion takes over. That’s why it’s important to understand your tolerance for investment risk and choose your investments accordingly. Also, understand what goals you are saving to achieve, and choose your investments accordingly. You don’t want to have any money you need in the next few years invested in volatile investments, for example.
Not Properly Understanding And Managing The Sequence Of Return Risk
When you retire, you begin to withdraw funds from your retirement accounts, instead of saving into them. If you take money out at a time when the market is declining, that can hurt the overall return of your underlying portfolio. Diversifying your account can help lessen the effects, or consider working with a financial advisor who can build a withdrawal plan for you.
Not Understanding And Taking Advantage Of A 403(b) Account
Regularly saving for retirement is one of the best ways to ensure you have enough money to stop working one day. That’s why a workplace retirement plan such as a 403(b) is such a great saving tool—you can have money deducted from your paycheck before you ever miss it. A 403(b) also offers the benefit of reducing your taxable income based on how much you save, plus the money can grow tax-free until you retire.
Not Properly Managing Your Various Retirement Plans And Annuity Savings Accounts
Once you open your workplace retirement plan, your work isn’t done. You need to choose investments that will provide enough growth over the years, and create a plan for income in retirement through annuity accounts if you have access to one. A financial advisor can walk you through those options and help build you a plan.
Forgetting To Use Their Medical Expense Investment Accounts
Medical accounts such as an HSA or an FSA provide a great way to manage medical costs while saving on taxes. Still, it’s easy to save the money into one of these plans and then forget to spend it. FSA funds usually have a deadline to use the funds before they’re forfeited, so set a reminder to yourself to visit the doctor or purchase other supplies.
Carrying Too Much Debt Into Retirement
Years ago, many retirees paid off their mortgage before leaving the workforce. Now the number of retirees carrying mortgage debt has doubled from years ago. (1) Others are paying down student loan debt, either for themselves or their children, or are carrying credit card debt. If possible, enter retirement with as little debt as possible, or reduce your carrying costs. Today’s low-interest rates mean you may want to refinance a home loan.
Failing To Plan For Long-Term Care Or Nursing Home Expenses
Though we don’t like to think about it, many of us will need some type of long-term care in retirement, especially as we live longer lives. The costs can be daunting and often aren’t covered by Medicare. A financial advisor can help you account for those costs in your retirement planning, and help you explore long-term care insurance and other options.
Avoiding These Common Mistakes
Making the right financial choices can seem easy until you’re struggling to save for multiple goals, choosing your investments, or helping family members financially. We can help you look at your whole picture and suggest the moves that will help you today and in the future. Reach out to us at 260-436-7006 or schedule your free 30-minute Fit Call online.
About Shelton Financial GroupShelton Financial Group is an independent, multi-generational firm in North East Indiana that takes a team approach to addressing their clients most pressing financial concerns. SFG was founded in 1996 with the mission of helping people enjoy their wealth. Using their proprietary “One Life Formula,” the team at SFG focuses on what matters most to their clients and what they can control, integrating their wealth management needs with other aspects of their financial picture. To learn more about Shelton Financial Group and how they can help you achieve financial independence, visit them online.