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THE LAST PUSH Financial experts say the final years before retirement are crucial, but preparations should start long before. Here are some common missteps to avoid as you look toward a post-work life. By Andrew King
PHOTO: HARLI MARTEN/UNSPLASH
As the majority of Americans live paycheck to paycheck, one challenge looms in the distance, and it may be closer than you think: Preparing for retirement. The principles that guide smart retirement in 2024 aren’t necessarily the same as they were 20 years ago. So for many approaching retirement age, the final stretch before calling it quits can come with a variety of surprises, along with regret for not having adjusted plans sooner. And to make matters even more challenging, many simply aren’t aware of what they should be doing, when they should be doing it, or how far behind they may actually be. “Most people don’t know how it works, and they don’t take the time to learn,” says Peyman Salehi, managing director and head of wealth and asset management for Fifth Third Bank in Central Ohio. For those who are playing catchup as retirement nears, here are a few key areas where Central Ohio financial advisers often see mistakes being made. Unrealistic Expectations Retirement is meant to be a season of following passions and enjoying time previously spent working. But that expectation can result in lofty, idealistic goals rather than a pragmatic plan to live into your senior years. “Many retirees have a very clichéd view of what retirement is—they’re going to travel a bunch, take an RV across the country, things of that nature,” says Derek Sears, director
of wealth management and financial resources at KEMBA Financial Credit Union. “But what I find is that you ask follow-up questions, like, ‘Do you travel now?’ or ‘Have you ever been in an RV?’ and the chances of you retiring one day and executing on those are actually really low.” Shawn Ballinger, founder and wealth manager at Columbus Street Financial Planning, says the disconnect between those goals and concrete retirement plans can come from a variety of places. But one of the consistent areas where people underestimate retirement spending is in planning for expenses related to health care. Ballinger often recommends that people put much more in their health savings accounts than they expect to need, advising clients to set aside up to $150,000 or even $200,000 to account for unexpected health costs. And for those with dreams of a major post-retirement lifestyle shift, his biggest advice is to simply try it on for size before you’re there. “If you think you can live on $100,000 a year, as an example, well then maybe you might want to try that for two, three, four or five years before retirement to see if you can actually stick with that,” he says. “The old retirement of sitting in the rocker and watching country-westerns? That doesn’t exist like it did 30 years ago.” Too Much Risk Aversion It’s a simple idea: When your income is fixed, your investments should be
as safe and risk-averse as possible, right? According to the experts, not always—especially if you’re retiring on the earlier side. “People think their portfolio should become more conservative as they get closer to retirement, and while that’s true around the margins, the reality is that we’re all living longer,” Ballinger says. “I basically project all my clients are going to live to be 95. … And if that’s the case, then the portfolio still has to have enough risk to meet those longterm planning goals.” Risk aversion can take a variety of forms, from the percentage of a portfolio—Ballinger says he advises 60 percent stock risk or higher for many clients—to decisions to sell assets and investments. Often, clients who have held on to a particular investment are reluctant to sell. Others avoid diversifying with stocks based outside of the U.S. because of recency bias. In reality, those on a fixed income need to be able to generate as much as they can. And although the last decade before retirement is crucial for planning purposes, Salehi says excessive risk aversion can start to have an impact much earlier in the process. “Sometimes they invest too conservatively very, very early on, which does not allow them to accumulate the assets [they need], partly because of lack of understanding, fear or anxiety,” he says. “But the beauty of the public markets is that time cures most ailments. So time is really important, and people need to go back to the inception AUGUST 2024 COLUMBUS MONTHLY
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