How sound is your financial ship?
According to the Employee Benefit Research Institute's 2025 Retirement Confidence Survey, 7 out of 10 Americans feel confident they have enough to live comfortably throughout retirement. But that means roughly 30% of working Americans aren't quite ready.
"Everybody needs to have a plan," says Brian S. Kuefler, Vice President, Senior Planner with First Horizon Advisors. Keeping your financial plan on track means doing the right things and avoiding the wrong ones. As you shape your strategy for creating long-term financial health, here are five key mistakes you don't want to make.
#1 Waiting to Start Planning for Retirement
Procrastination can be enemy number one to your financial planning success.
Timothy Wiedman, a retired former associate professor of management and human resources at Doane University in Crete, Nebraska, waited until his 30s to begin saving for retirement. When he finally opened an individual retirement account, he didn't maximize his annual contributions right away.
"I justified my poor money management by telling myself that I could catch up on retirement after my career had blossomed and I was making a better salary," Wiedman says. In the meantime, he missed out on years of compounding interest potential.
It may be tempting to wait to start contributing to a 401(k) or IRA if you're just starting your career or you're worried about the possibility of a job loss because the economy's in a slump. But that can be costly, as can waiting to get a grip on your spending habits.
"Developing a budget and tracking it over time is step one in getting into a longer range plan," Kuefler says. Regardless of where you are in terms of your age, "you need to know what's going in and out" to understand how much you can afford to save, and retool your budget if necessary, to ensure that you're still living within your means if your income drops temporarily to avoid taking on debt.
#2 Not Setting Realistic Retirement Expectations
How much money do you think you'll need to retire?
According to the EBRI survey, about 54% surveyed had actually attempted to create an accurate calculation of their retirement needs.
Wiedman always assumed he'd retire with $1 million saved in his 403(b) and individual retirement accounts. He also planned to work until age 70 to maximize his Social Security benefits. Health issues, however, forced him to retire a few months shy of his 63rd birthday.
"If I'd been able to carry out my plan and continued to max out my retirement contributions, I'd have gotten close to my million-dollar goal," he says.
As it was, he retired with approximately $650,000 in savings. He downsized to a smaller home and now lives comfortably on a combination of retirement savings, a small state pension, and Social Security. But, his retirement planning didn't account for the possibility of a health issue shrinking his future income.
Being downsized into early retirement, living longer than expected or changes to Social Security are all possibilities that your financial plan needs to account for. So setting realistic goals from day one, then testing those goals using a retirement savings calculator, can help you determine how closely you're staying on track.
#3 Failing to Create Financial Safety Nets
It's important to be prepared for the occasional curve ball. Lack of an emergency fund led Wiedman, when he was in his mid 30s, to withdraw money from his IRA to buy a used car after the one he'd been driving broke down and was deemed too expensive to fix. He had to pay income tax on the withdrawal, along with a 10 percent early withdrawal penalty.
Yet the bigger loss was to his future account balance: Wiedman calculated – based on his age at the time, his planned retirement age, and the average annual return (since inception) of the fund in which the money was invested – that, over the 30+ years that the investment's return could have compounded, the withdrawal cost him at least $60,000 in retirement savings growth.
Having six to 12 months' worth of expenses saved in a liquid account can keep you from having to tap your retirement savings prematurely. But don't stop there when growing your cash cushion. Kuefler says annuities, long-term care insurance, and life insurance can also be helpful additions to your financial plan.
Life insurance provides a death benefit to your loved ones, and cash value policies can be a tax-free source of cash loans or withdrawals during your lifetime. Annuities can provide you with an income stream in retirement, which is guaranteed by the insurance company. Long-term care insurance can help pay for nursing care so you don't have to spend down your retirement assets.
"Long-term care, out-of-pocket healthcare expenses that Medicare doesn't pay, inflation, and taxes are the biggest things that take retirees by surprise," Kuefler says.
Expanding your financial plan to include an annuity, long-term care insurance, or life insurance can help mitigate potentially negative impacts on your retirement security.
#4 Not Seeking Advice from a Financial Planner
Over one-third of workers (37 percent) report that they (and their spouse) are currently working with a professional financial advisor or representative. In addition, a greater share (47 percent) expects to work with a professional financial advisor or representative if they are not currently working with one.
"You have to be right twice – you have to know when to get out of the market and when to get back in," Kuefler says, and that's difficult for the average investor to do successfully. An advisor can help you ride out the ups and downs of the market over time.
Kuefler says, when you're looking for an advisor, to consider their investing philosophy, fee structure, and what their typical client looks like. This can give you an idea of how well suited they are to providing advice specific to your situation, and the degree of attention they'll be able to provide.
#5 Not Reviewing Your Retirement Plan Regularly
Financial planning isn't a set it and forget it proposition. Periodic reviews are necessary to help ensure that you're staying on track while making adjustments as needed.
For instance, some of the things you should be reviewing regularly include:
- Your savings rate compared to your overall goals
- The size of your emergency fund
- Contribution rates to tax-advantaged and taxable accounts
- Asset allocation in your investment portfolio
- Tax implications of your decisions
- Adequacy of your insurance coverage
But how often should you be checking in?
"I generally recommend reviewing things once a year if there are no major changes," Kuefler says.
On the other hand, if you experience a job loss, get married or divorced, are planning to send a child off to college, or receive an inheritance, you'll want to revisit your plan immediately to gauge the impact of those events. Ultimately, the more hands-on you are in your approach to your financial planning, the better your chances of avoiding any major missteps.
If you're concerned about the state of your finances and whether you're making the right moves, talking to your Financial Advisor at First Horizon Advisors, Inc. can help. And if you don't have an advisor yet, schedule an appointment today to get the assistance you need to get your financial plan in shape.
