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Retirement Planning Specialist Derrick Kinney shows how to avoid Five Critical Retirement Mistakes

Avoiding These Costly Pitfalls Can Increase Your Retirement Accounts, Financial Security, Investor Confidence and Reduce Your Taxes

March 20, 2012 -- Retirement statistics have been dismal lately. Recent studies show that less than 15 percent of workers are very confident in their ability to save enough to retire comfortably and almost 63 percent say it would be impossible for them to save the amount of money needed for a comfortable retirement.

"Consumers' confidence in their ability to retire is down dramatically," said Dallas retirement planning specialist Derrick Kinney, ChFC, CASL, and CLTC, principal of Derrick Kinney & Associates(http://www.derrickkinney.com), a Dallas/Fort Worth-based financial advisory practice specializing in retirement planning. "Yes, the recession played a large role in decreasing confidence, but there are also several mistakes I see retirees making that can negatively affect their finances and make their situation worse."

Five Critical Retirement Planning Mistakes:

Mistake #1 - Not having a defined and practical retirement plan.

One of the most shocking finds of the 2011 Retirement Confidence Survey was that 42 percent of people admitted they determined their retirement savings needs by guessing. While the most accurate way to determine the amount of retirement savings you need is to meet with a financial advisor, there are numerous websites that can help you create an estimated retirement goal. A general guideline is to plan to live on 80 percent of your pre-retirement income.

"Before my clients retire, I recommend they practice living on their retirement budget for at least a year," Kinney said. "This lets them test it. If it's not enough money, they may need to work a little longer."

Mistake #2 - Underestimating the increased cost of health care-related expenses.

In retirement, most of your expenses will decrease except, of course, healthcare-related expenses - which can skyrocket. Most people realize this, but few realize just how high the cost can go. Many seniors find themselves spending unplanned thousands of dollars out-of-pocket on medical care and prescriptions.

"An extended stay in a long-term care facility can eat up retirement savings quickly," said Kinney. "Current data show that roughly 70 percent of adults over the age of 65 will need long-term care at some point in their lives. The reality is that Medicare provides very little coverage so most adults may have to cover the expenses themselves."

Mistake #3 - Not having a valid will.

When you die without a valid will, your state will create one for you. The state's will may or may not be consistent with your intentions or desires.

But there's also one more frequently overlooked consequence of dying without a will.

"Failing to leave a proper will increases attorney's fees and other costs related to probate in a dramatic manner," said Dallas estate planning attorney Elliott Burdette (http://www.eblaw.net) . "A simple, properly prepared will can usually be admitted to probate for a total cost of approximately $1,500, but the legal expenses associated with not having a will are at least three times and often six to ten times greater than if an individual had prepared a valid will." 

And just because you have a will, doesn't make it valid.

Burdette said one of the most common mistakes he sees are people who create their own will in a manner that makes it invalid. Therefore, it has the same effect of not creating a will at all.

Mistake #4 - Not understanding the tax implications of retirement.

"Before you retire, you must understand that every financial decision has both an economic and an income tax implication," Arlington certified public accountant Robert Brackeen (http://www.rbcpatx.com) said.

"There are two common mistakes I see people make during retirement," said Brackeen. "The first is that they don't fully understand how and when to calculate required minimum distributions. They just assume the investment fund will do it for them. The second is that retirees and recipients often get confused about the tax implication of gifts, both to the donor and the recipient."

Brackeen recommends retirees discuss the tax implications with their advisers before making any major financial decisions.

Mistake #5 - Not setting financial boundaries in advance.

"Knowing what your financial boundaries are can help you set expectations for your kids and grandkids," said Kinney. "Your first priority should be to ensure you have enough money to retire comfortably, and then consider helping your family with what is left over."

Be up-front with your children about how much, if any, financial assistance you can provide.

Kinney noted that having worked with clients for seventeen years, clients who avoid these mistakes have a higher likelihood of reaching retirement goals, preserving financial security and feeling more confident about their future.