I Asked 2 Financial Planners What Mistakes People Make When Planning for Retirement

Whenever I have a question, I like to go to the experts. With retirement on the horizon for so many, I wanted to know what the experts thought was the biggest mistake people make when it comes to retirement planning.

They both said the same thing: people are failing to factor in inflation and healthcare costs in their retirement plans.

Close up Thoughtful Blond Adult Woman, Standing Outside the Building, Looking Into Distance with a Smiling Face.Photo byImage Credit: stockfour/Shutterstock.

Garrett Harper is a CFP at Harper Financial Strategies LLC; he said that a common mistake that people make is not positioning their investments to keep up with inflation.

He said, "Understanding that your retirement could be 20 years or more means that you should have investments positioned for that timeframe. Realistically, assets should be positioned in 3 categories. First is cash needs for the next 2 years, earning interest rate with no market risk. Second is assets for the next 3 to 8 years, earning a rate of return to keep up with inflation but not taking too much market risk. Third, is 9+ years, these assets need to grow to keep up with potential health costs, leaving money to charities or children, and any other unknown that could happen 10+ years from now. "

Terry Parham Jr. is the Co-Founder and Financial Planner at Innovative Wealth Building. He shared some of the mistakes people make as they prepare for retirement and some of the dangers they face.

He feels like people do not consider the impact of inflation on their spending goals. He said, "A spending target that starts at $3,000 per month can easily increase to $4,000 per month over ten years with a 3% inflation rate. When compounding over a 30-year retirement time horizon, the differences in total dollars needed can be quite drastic. Many people do not accurately account for healthcare costs. According to a study by Fidelity, retiree healthcare expenses average around $500 per person per month. These costs are expected to grow at approximately 5% per year, which is significantly higher than general inflation. Furthermore, this estimate does not include long-term care expenses, which can be a substantial financial burden in retirement."

Inflation

Inflation has risen in the past few years, although it did slow down a bit this past quarter. However, with the cost of inflation coupled with the high cost of healthcare- many people in retirement are finding inflation to put a real damper on their plans. When planning for retirement, this is something everyone must consider.

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