Beware of These Four Traps as You Approach Retirement

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Dec 01, 2022

After years of full-time employment, it’s easy to get used to receiving a regular salary, employer-sponsored retirement plan, health insurance, life insurance, and sick days. As you prepare to retire, review these common traps and address any issues now so you can help increase your chances of avoiding them.

Trap #1: Insufficient cash account balance

Four Traps 12-2022.JPGWhen you’re retired, the bank may not give you the same consideration for a loan as you received when you were a full-time employee. It could be more difficult than you think to get a loan post-retirement.

Now is the time to accumulate as much cash as possible in your bank account or negotiate a line of credit. Don’t assume that your IRA or other retirement account is a cash source. The bank cannot accept your retirement plan as collateral.

Trap #2: Losing Your Benefits

Replacing the benefits and paycheck once provided by your employer becomes a primary objective for many as they reach retirement. Most people have three major assets:

  • Their retirement account, which could consist of $1 million or more
  • Their home
  • Their group life insurance program

Remember to replace your life insurance before you retire! Don’t forget that the life insurance policy provided by your employer will terminate when you retire. Take precautions — either extend your coverage within the benefits program or secure your own private policy to retain that life insurance.

Trap #3: Losing Sight of Your Tax Bill

Tax planning is an essential part of financial success. Most investors focus on achieving a higher return on their portfolio or a higher interest rate at the bank. It’s easy to forget that lowering your tax bill can also impact your bottom line.

Trap #4: Rolling Over Your 401(k) Assets into a More Expensive Account

A 401(k) rollover is when you move money from a 401(k) into another tax-advantaged retirement account. The potential benefit — if it’s done properly — is that the money is transferred from the retirement account to the IRA without tax consequences. Another potential benefit of a rollover is that an IRA can be self-directed. Before you make any decisions, be sure to do your homework as this may not be the best option for your personal situation.

If you’re changing jobs, you’ll want to consider how the fees and expenses in your new employer’s plan compare to other options such as an IRA. Because IRAs offer a wider variety of investment options, you’ll want to check the transaction fees, commissions, and mutual fund expense and load ratios. Even a 0.1% difference in fees can impact the eventual value of your investment portfolio.

Are You Prepared for Retirement?

Any one of these traps could significantly impact the quality of your retirement. In addition, there are other moving pieces to consider as you start planning your transition into retirement: Social Security, healthcare, and Medicare, to name a few. Please contact our advisors to discuss your options at 319-364-2945 in Cedar Rapids or at 319-339-4884 in Iowa City.

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