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Mike Loo, MBA

Vice President of Investments


5 Unexpected Threats To Your Retirement Plan

| March 22, 2019
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For many Americans, their number-one retirement fear is that they won’t have enough money to actually retire. Only 27% of pre-retirees believe they’ll be financially ready for a retirement lasting just 10 years.1 And while your current retirement account balance may be causing you stress, there are other little-known and often ignored threats that could cause you to lose the nest egg you have diligently worked for, no matter how big or small it is. Here are some unexpected threats to your retirement plan and ideas for how to prevent them from derailing your retirement dreams.

1. Miscalculating Your Retirement Needs

If you’ve managed to amass a significant nest egg, you may be pretty proud of yourself. But even if you have half a million or a million dollars saved, it may not be enough. If you plan to retire in your early or mid-60s, your retirement savings will need to carry you through 30 years or more. Not to mention, you will encounter additional expenses along the way, such as healthcare costs, home maintenance, and taxes.

The best way to minimize financial anxiety in retirement is to set up contingency funds to cover the unexpected and work with your financial professional to map out various retirement scenarios to see what your savings can handle. Then find ways to maximize your savings to give yourself a cushion.

2. Neglecting To Create A Withdrawal Strategy

Just because you’ve worked hard to save for retirement and build up a nest egg doesn’t mean you can rest easy. Once you start tapping into your savings, you need to develop a strategy to withdraw your funds so they last the rest of your life, however long that may be.

Since you know that stocks have historically earned an average of 7-8% a year, you might assume that you can afford to withdraw 7-8% of the initial portfolio value (plus a little more for inflation each year).2 But in reality, to protect against the uncertainty of the market, you may have to limit your withdrawals to 4% or less.3 Remember, in years 2000-2010, the S&P only generated 1.8% per year! Since there is no simple, one-size-fits-all plan, you need to figure out what will work for you and your unique situation, taking various factors into account, such as time horizon, risk tolerance, asset allocation, and unexpected living expenses.

3. Putting All Your Eggs In One Basket

Diversification is one of the most talked-about investment strategies for a reason: it helps protect your investments from market volatility. While you can’t eliminate risk from your portfolio entirely, you can cushion the blow if things go south. If you put too much of your money into one stock or even one sector of the economy, you put yourself in danger of losing your retirement savings.

Working with a professional, evaluate your portfolio’s current allocation to determine if it needs to be rebalanced or diversified. Look at the big picture of all your accounts, including employer-sponsored ones, and ensure you are diversified across the board.

4. Ignoring Your Long-Term Strategy

Have you ever taken the time to create an investment philosophy based on your goals, personality, and risk level? If you have, do you stay true to your strategy, or do you let your emotions take over when the markets go wild? The reality is that markets fluctuate every day. If you try to beat the market and get swayed by the daily headlines, not only will you give yourself unnecessary stress, but acting on your emotions could damage your savings.

A 2015 Dalbar study shows how playing the market leads to underperformance. Buying high and selling low due to panic lowers your overall return and may jeopardize your nest egg. What should you focus on instead? Maintaining a long-term perspective and a disciplined approach, and refusing to ride the emotional roller coaster.

5. Taking Advice From The Wrong Sources

Retirement planning can be complicated and stressful due to the many unpredictable factors that go along with it. When you don’t partner with a trusted financial professional, you put your money in a dangerous spot. At every point in your life, you need to work with an advisor who will help you create a personalized retirement road map and work through various retirement scenarios, not just promise to make your money grow.

Your First Step To Avoid These Threats

No two individuals’ financial planning needs are the same, which is why it’s critical to create a plan based on your goals, circumstances, and unique needs. By helping you understand some of the risks and common roadblocks you can experience, I can show you how to plan ahead for the unexpected and reduce the chances that your retirement plan will fail. If you think your retirement plan needs a second look, call my office at (949) 221-8105 x 2128, or email me at [email protected].

About Mike Loo

Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to make a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at [email protected].

Mike Loo is a registered representative for LPL Financial (LPL) and an Investment Advisor Representative (IAR) for Trilogy Capital (TC). Securities offered through LPL, Member FINRA/SIPC. Investment advisory services offered through TC, a Registered Investment Advisor. TC markets advisory services under the name of Trilogy Financial (TF), an affiliated but separate legal entity. TC and TF are separate entities from LPL.

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(1) https://www.marketwatch.com/story/retirement-anxiety-is-universal-as-is-the-antidote-2017-02-28

(2) http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

(3) https://www.nytimes.com/2015/05/09/your-money/some-new-math-for-the-4-percent-retirement-rule.html?_r=0

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