By Francis Ostrom, CFP®, CBEC® and Scott Kogler, CPA/PFS

No matter where you turn, it seems like someone has advice to offer about retirement. In spite of an abundance of information, the fact of the matter is that many Americans – even successful business owners, executives and professionals – are woefully underprepared to move securely into their post-career lives.

While every generation has faced economic uncertainty in some form, today’s economy is vastly different than the one our parents navigated. Defined benefit pension plans, which provided bedrock retirement security for workers and families in the 1960s, 1970s and 1980s, are almost extinct. Now we count on a 401(k) and/or an IRA to anchor our retirement, both of which call for a more active role on the part of the plan holder.

At Davie Kaplan, here are three common retirement mistakes we see successful business owners, executives and professionals make – and a few ideas about how to avoid them so you can look forward to a secure and rewarding retirement.

#1. Failure to Plan

It’s been said many times before, but we’ll say it again: failure to plan is by far the most common retirement mistake made by otherwise savvy and engaged business owners and professionals.

The most-stated reason business owners don’t plan ahead – at least on the personal front – is that they are completely focused on growing their business or practice and attending to the many challenges that come up along the way. They default to the story line that their goal is to build the value of their business, and that its value down the road will somehow take care of them when it’s time to step aside.

Failure to plan comes in several other flavors. Many business owners and executives genuinely intend to plan for life after work, just “not now.” They defer such planning to some undefined point in the future when they assume they’ll have more time and a clearer picture of their likely circumstances. Another version is general overconfidence: they’ve worked hard to grow a profitable business and support a comfortable lifestyle for their family, so they believe they’re well-equipped to figure things out when the time comes.

And of course, there are people who have no desire to actually retire the conventional way. They love what they do, and expect to continue to operate at a high level, all the while enjoying the fruits of their labors.

As financial planning professionals, we’ve seen how each of these “failure to plan” scenarios can evolve. Sometimes the assets of a business are substantial enough that everything works out, or at least everyone’s needs are covered through even a lengthy retirement. In other cases, the business owner finds him or herself boxed in, with fewer good choices and a lower level of income in retirement than anticipated.

Wherever you fall on the planning spectrum, keep in mind the experts’ rule of thumb: Get serious about planning at least 10 years before you anticipate retiring. And don’t shy away from questions about how your current rate of savings will play out – does it factor in inflation? And how do taxes impact the timing and source of your planned distribution in retirement?

Be sure to set up a periodic review of your portfolio to ensure its asset allocation continues to align with your long-term goals and overall risk tolerance.  Reviews should focus on account performance, portfolio allocation compared to original risk guidance, income generation and portfolio appreciation.

#2. Treating Your 401K as a Source of Liquidity

For those who have been diligent from the beginning about maximizing their 401(k) contributions, you might find yourself looking at a healthy and growing balance – congratulations!

At the same time, you could also be facing higher-than-anticipated expenses over the next few years – let’s say to pay a child’s tuition at a prestigious (but expensive) college or university, or take on long-deferred home improvements.

It can be tempting to see your 401(k) as an acceptable source to “borrow” from to pay for such expenses. After all, if you need a loan, why not borrow from – and pay interest to – yourself?

While it’s nice to have 401(k) savings as an emergency source of funds you can access – via hardship withdrawal or a loan with specific provisions – we often see these retirement savings used to cover non-catastrophic expenses. Given that most families struggle to save the recommended 10%+ of their salaries for retirement, bleeding off savings you’ve socked away in earlier years dramatically reduces the growth of one’s retirement nest egg. Tapping these funds could invite trouble once retirement is underway.

#3. Taking Care of Others Before Protecting Your Own Retirement Security

As a successful business owner or high-income professional, you may find yourself with opportunities to support family members (or others) with financial gifts or loans.

This is a wonderful position to be in, especially when your generosity can make a real difference in someone else’s life. The important caveat here is to keep an eye on the big picture and make sure that any gift or loan you make does not compromise your long-term security.

The best way to ensure you offer any such support wisely circles back to point #1 above. A key aspect of thoughtful, comprehensive retirement planning involves anticipating contingencies. And when you have a solid plan in place, you can respond to requests for support with peace of mind.

Set Yourself on the Right Track for Retirement

Davie Kaplan can help – whether it’s to ensure that you evaluate long-term needs realistically, offer strategies to get you back on track and avoid common retirement mistakes, or provide tax planning advice to protect your nest egg.  Our expert team of CPAs and financial advisors has been serving families and businesses in the Rochester, NY area since 1934. We offer deep, industry-specific experience and a local touch, and we’re equipped to help clients of all sizes.

How can we help you?

Please let us know if you have a question, or would like further information about Davie Kaplan.

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