Why is Planning for Retirement So Damned Confusing?

Retirement planning is no easy task. Oh, you may think it is, but it never really is, at least it isn’t for most people. Maybe if you are lucky enough to hit the Powerball jackpot and win a few hundred mil, you may be able to just coast into a retirement and never have to worry, but seriously? I hope you aren’t actually trying to do that. If you are, your retirement plan sucks!

Planning for retirement isn't always easy, but it can be much smoother if you start early and avoid these mistakes. Here's what to do and what not to do.

There are a lot of things that go into your retirement planning. Obviously, factors like salary, debt, and expenses all will affect your ability to save, but also know this: there is no one-size-fits-all solution to planning and realizing the vision of your successful golden years!

You can’t just follow the often talked about myths that actually just may destroy your retirement. Sometimes, unless you have seen it yourself, it’s not the best idea to just go with the one you “heard about on TV or just read about in some blog” (not this one of course, my advice is always top notch! 😉 ).

There is so much “expert advice” out there about retirement planning (in fact it’s a huge multi-billion dollar industry!) that there are literally dozens of common misconceptions and mistakes in the “how-to’s” of planning a successful retirement. That’s why it’s just so damned confusing. So, here’s my take on some of the biggest errors you can make and how to avoid them!

Retirement Planning Mistakes

1. You don’t really have a plan, do you?

You know that someday you are going to retire. Ok you don’t know exactly when, I get it. But, if you are thinking it’s waaaaaay off in the next century sometime and you have been procrastinating about actually thinking about beginning the process, shame on you!

So many people do not get started until it’s way late and then they lose the real ability to save and have their money grow exponentially with compound interest or just plain grow in stocks or mutual funds. When you wait, your retirement loses the golden chances and may never grow to the level it could have been.

I have said it before and I will say it again: The time to start saving and investing in your retirement is always the very first day you start your very first job! Or as soon as you qualify to start.

If your employer offers a 401(k) plan or a pension plan (although the latter are becoming less common), get in on it as soon as you can! In the meantime, you can also open an individual IRA account without an employer sponsoring it. These products, which can offer greater returns and more diversification than a traditional deposit account, are effective ways to start growing your retirement nest egg even before you get into any employer sponsored plans.

2. You really have no idea how much you will need to live on in retirement

This is a hard one to figure out. You’re really making a guess here, but hopefully it’s an educated one. If your retirement is way off in the future, try to figure what kind of living arrangements you want to have. Homeownership with a mortgage? Renting an apartment? Living with the kids? Will you have a car? Are you looking to move to warmer territory like Florida? Every way you consider it affects how you will live and how much you will need.

What about the when? Early retirement? Retiring early has two main disadvantages. First, the earlier you retire, the less time you have to save up for retirement.

The second disadvantage has to do with your actual Social Security payouts. Although you can retire as early as age 62 and start receiving Social Security benefits, your age dictates the size of your payout. For example, if your full retirement age is 67 and you start your retirement benefits at 62, prepare for your monthly benefit amount to be reduced by about 30%. That translates to hundreds less a month and thousands less a year, forever!

Remember that health and healthcare, dependents, debts, travel, and hobbies all play a role in how much you will need. The best way to deal with it is more like doing your planning “backwards”.

Backwards is actually thinking forward

While planning retirement, figure out what you actually spend now, what you expect to spend as you age and grow your family, and then think about how you may “downsize” your current expenses when you do actually retire. You will then have a good guess on a number in your mind as to what you expect to live on in retirement each year.

Make sure you adjust that number for historic inflation if you try to project 10, 15, 20 or more years ahead of your “today” budget, because everything will cost more in your future! That number can be divided by the number of years that you need your nest egg to last and that gives you a percentage of withdrawal or a “draw rate”. Most people think that 3-4% is the number that when supplemented by Social Security benefits and (hopefully) other income streams (passive and active) can last them 15-20 years in retirement…if you start at age 67 (FRA – full retirement age).

If you begin retirement earlier, you need to have saved more even if you think you have saved a lot already. It might feel like the ultimate payoff to stop working and gain access to your funds, but don’t let all that cash fool you into living the high life early on in your retirement. That would be a big mistake.

Sure, the first years of retirement might be the best time to travel, do home projects, and spend money on things you might not be able to enjoy later on as you age. But it’s important to spend your retirement savings modestly because you don’t know exactly how long you’ll need those funds to last. So draw less, perhaps much less per year if necessary.

3. Don’t throw money away on high account maintenance fees

An average worker who begins paying an investment broker at age 25 and earns about $50,000 a year will pay over $250,000 bucks in fees on transactions during his 40+ year investment lifetime even if the fees are just 1% with the broker for his work.

The hopes that high-yield brokers offer is very tantalizing, but compare these account fees with ones attached to lower-yield options around to really determine the true value of your investments and the advice and counsel you are getting. You also must ask about and watch out for the hidden fees you’ll encounter in retirement investments. Always ask about them.

Periodically, minimally every year, check on how you are doing compared to the overall marketplace. Resting on your laurels because of a good year last year does not in any way mean the same will happen this year or any other year. For a strong retirement plan, know how well your investments performed last year and for the past five years. Unless retirement is imminent, long-term performance should dictate which funds you keep and how much you will invest.

4. Oh yeah, never just rely on Social Security benefits in retirement

Social Security can provide some financial security, but you shouldn’t rely only on your Social Security checks to fund all your retirement. Social Security benefits represent about 39% of the elderly’s income today, according to the Social Security Administration. Trying to retire only on Social Security has a lot of hidden costs and risks, and frankly you don’t really want to live like that do you?

Earlier I mentioned the importance of alternative sources of income and I can’t stress enough how important that will be. If you have another stream, then you will be much more secure than if not.

You may expect to earn money with a part time job, but you can’t count on that. Health may be a factor in doing that and then there is also the challenge to find something you like and can do and that fits your specific needs and your schedule. You are not in a power position when seeking part time work in your 60’s. Try a side business…being self-employed might just be your thing. That’s one reason I started blogging. It also why I look for things I can sell at the local flea market. I even work as a polling helper and make a few hundred dollars during each election here in NJ every year for just a couple of days’ work.

5. A short list of “no-no’s”

Here is a quick list of never do/no-no’s for you. I just wanted to touch on these because when it comes to retirement planning, I have mentioned most of them before, but it pays to keep them top of mind!

a. Don’t take money out of a retirement plan before retirement

You will suffer penalties and lose valuable time to grow it when you will really need it!

b. Don’t be too conservative or too aggressive

When you plan and invest, aim to be average. Be comfortable with your plan.

c. Avoid “variable annuities”

Yes, variable annuities do offer some benefits, like making it possible to receive regular payments throughout the rest of your life when you annuitize and they also have a death benefit so if you die before you started receiving payments, your beneficiary will receive a specified amount. They are also tax-deferred.

I prefer fixed-rate annuities, though some will frown on them no matter what kind. At least I know in advance what I will actually have when I retire and not depend on some kind of “projected” result.

Two more things: in comparison to other mutual fund options, variable annuities can cost 50% to 100% more in fees and surrender charges, and gains on these accounts are taxed as normal income—not at the lower capital gains rate—upon withdrawal.

d. Don’t carry your debts into retirement

For many people, retirement means transitioning to a fixed-income lifestyle. Carrying debt into retirement is therefore detrimental to your financial health and can eat away at your retirement savings. Do your best to get all debt paid off before you stop working. If you can be mortgage-free, that is a great way to be! My biggest regret is that I am not mortgage-free (that was mainly due to suffering through a divorce in 1998 and having to split the assets and then start homeownership all over again at age 56).

Final Thoughts

I guess what I am really trying to say here is that although I am all for being an optimist and thinking that this is the sunny side of the street, retirement planning often does have a lot of bad weather if you don’t take a lot of time and preparation in its planning. It’s something that is very, very hard for anyone in their 20’s, 30’s, and even 40’s to spend time dwelling on. But, if you wait until 50 or later to start your retirement engines, it will be difficult to catch up. Don’t keep on buying those Powerball tickets and thinking that’s your answer. If you do, you may be one of those caught in the rain without an umbrella.

Are you ready for retirement? Are you just starting to plan or are you well on your way to it? What have you done right? What have you done wrong? Are you confused and worried, or are you prepared and confident about what is in store for you in retirement?


  1. I think a big reason why retirement planning is difficult is because it’s not a one-time plan that you can just set and follow. You’ll need to course correct along the way. My favorite retirement planning tool is Financial Mentor’s Ultimate Retirement Calculator b/c it has the capacity to look at more variables than many other calculators from the big name investment companies.

    1. So many people miss your point, Caroline, when it comes to revision of any kind of plan, particularly financial ones. You may know the direction you want to go, but the details of how to get there are in constant flux. Part of planning is at bare minimum to take a look at it and make the changes you need to. And I’ll have to check out the calculator you suggest. Really good comment. Thank you, Caroline.

  2. One of my bigger concerns is that I can’t rely on getting full benefits from Social Security by the time I retire. That is, unless reforms happen. Which I hope they do, but I can’t count on those.

    Unfortunately, I’m one of the people getting too late a start *and* I was too conservative with what little money I did invest in my 30s. But there’s nothing I can do now but try to make use of the next 30 years to best grow my retirement accounts and hope that everything stays the same up until I’m ready to retire.

    1. Despite the potential reduction of Social Security benefits, and even your conservative investments for retirement, you still have lots of time ahead of you to prepare. Although I am not involved heavily in stocks and mutual funds, for someone with a long term horizon, that has proven to be a great way to increase personal wealth if done with the right planning techniques such as asset allocation (for one). If your concerns are great and you do need help, I’m not against seeking out a professional to offer that kind of help. Good luck with everything and try to be optimistic.

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