Retirement is a time of reflection. It can also be a time of regret. Once you are retired, the reality sets in, and some decisions may prove to be ill-advised. The best thing about regret is that you can take your knocks, learn from the miscalculation and move on.
Here's how to avoid retirement regrets.
What you might be sorry about
"The most common regret we hear from retirees is that they didn't save enough to maintain their lifestyle in retirement," says Charles Weinrich, private financial advisor with SunTrust Investment Services.
If retirees could do a do-over, they would start saving sooner and be serious about it, says Melody Juge, founder and managing director of Life Income Management. "They wish they had been more thrifty when they were younger. They regret not having enough to do all the things they want to do for fun with family, or enough for family or charity," she says.
Juge has heard people lament how they didn't make a detailed plan for where they would live and how they would live.
At the other end of the spectrum, "We hear from widows and widowers who wish they had spent more of their money while their spouses were still alive – to take that dream vacation and make more memories. These individuals often lament opportunities they missed because they were always worried about saving for the future. Some of them realize now that they could have enjoyed more of their income along the way," says Weinrich.
Another area that tops the regret list is investing. "They realize they took on too much risk, or took too little risk," says Joshua Brockwell, investment communications director for Azzad Asset Management.
Some folks are bemoaning the losses they incurred in the last two bear markets, says Ken Moraif, senior advisor at Money Matters, a wealth management firm. "They regret not being more proactively involved in the decision making regarding their investments."
This regret was caused by not having a well defined "sell" strategy in place to protect themselves from a large decline in the market. "It is my belief that an exit strategy is the only way to have any chance of avoiding big losses in the next bear market," says Moriaf.
Secondly, there was misplaced trust. "Someone told them to stay in to 'buy and hold' and they felt they didn't know better and needed to just follow what they were told, much to their dismay," says Moraif.
It is a major challenge to determine an appropriate portfolio composition that will provide adequate income for current expenditures and growth to provide income in the future. "Not being able to determine one's future income needs makes this even more difficult," says Bob Stammers, director of investor education at the CFA Institute. "The reliance on equities and other growth focused investments can lead to paper losses and portfolio value swings that are very stressful for people living off their assets," he says.
The sooner you learn to say no the better off you will be. "Many individuals pay for their children's college education in full, and in some cases, even use their own retirement funds to pay for these education expenses. It's important to remember not to jeopardize your own retirement," says Angie Stephenson, partner, senior family wealth guardian at ParenteBeard Wealth Management. Instead, she says to find alternative paths. "Encourage children to attend a community college and then transfer to a state school, close to home. Consider a middle-of-the-rad approach to share in some of the educational costs."
Many regrets can be avoided by building a comprehensive financial plan with a certified financial planner, putting it into action and updating it regularly, says Weinrich. A financial plan can accurately analyze one's ability to successfully retire, including accounting for taxes, inflation, long-term care and increases in medical expenses, says Weinrich.
"A plan can also help people know when they can relax and enjoy what they've worked so hard to save," he adds.
Older retirees may not have known where to go for information, but for those retiring today, the world is a different place than 20-30 years ago, says Juge. "It's not difficult to learn what you need to know. But the rules that will get you to your goals are not sexy and they require confidence," says Juge.
She outlines some of her rules that can set you up for retirement. "Always pay yourself first, save 10% of your take home pay (that is after 401k and all other deductions) and place it in savings. Do not buy on credit, ever. If you don't have the cash then you can't afford it."
Furthermore, she says if there are two incomes in the household, use only one and save the other. She says ideally, pay off your house in 5-10 years.
Do the math. Going forward it is incumbent on retirees to have a well defined "sell" strategy, says Moraif. "We have averaged a bear market approximately every three years since 1929. The average drop in the market during those bear years was 37%. A retiree could see 10 bear markets during their retirement. If they are taking money out while their investments are losing money, they could very easily run out. The math and history is stacked against you. Why not prepare and plan for the inevitable?"