Thinking of retiring? Don't make these mistakes

7 common retirement mistakes to avoid
By Suzanne McGee, MSN Money

Baby boomers will live different retirement lives than their parents did. But the advantages of adventurous travel and second careers have pitfalls, too.

There's no single formula that will produce a happy retirement for baby boomers. But there are ways to boost the odds you'll retire in bliss rather than misery, experts say.

"About half of today's retirees are really quite miserable in their post-retirement lives," psychologist and researcher Ken Dychtwald has concluded, based on 50,000-plus interviews he has done for his books on aging.

Those retirees end up unhappy because they are unable to adapt to the new retirement model, says Jim McCarthy, a managing director at Morgan Stanley. How to be happy after work ends

"We have tended to look at our lives as being linear and retirement as being the final stage that we enter," McCarthy says. "If you realize that you're not locked in to any one approach or model -- that having 20 or 30 years gives you a lot of time to test out new roles for yourself -- well, you've boosted the odds that you'll succeed at retirement."

Having both time and options is a plus for boomers. But it also "pushes them to think outside their routines, beyond their comfort zone," says Sri Reddy, the head of retirement-income strategies for ING, a financial-services company. "Perhaps the biggest challenge boomers will face is a challenge to their imagination." Quiz: Are you ready for retirement?

As boomers start to act on their imaginations, experts say, there will be common traps to watch out for. Here are the top seven:

1. Exiting before deciding on an encore. Retiring early may seem like a status symbol, signaling financial success. But that doesn't mean it's the right thing to do, says McCarthy, even if you really hate your job.

"You're not ready to retire until you've decided what you're going to do for an encore," McCarthy says.

A retirement-life plan doesn't have to be carved in stone, but it should exist, says Fred Mandell, a former Ameriprise executive.

Mandell, for example, began crafting his plan at age 55, three years before he retired in 2001.

"Once I began thinking about the future, I realized I didn't know what that would involve, and I drew up a kind of business plan around what I thought I might want to pursue."

That led Mandell to explore art -- sculpture, drawing and painting -- and then create a consulting company. Slide show: See Mandell's art

2. Locking yourself in. For many boomers, retirement is the first time in their adult lives to be their own bosses -- that is, if they choose to. If they don't, that's
a big mistake, says Jeri Sedlar, author of 'Don't retire, rewire!' and an adviser to The Conference Board, a business research organization, on issues related to the aging work force. The most common problem

"It's unrealistic to try and come up with one giant plan for the rest of your life," she says. Instead, Sedlar advocates breaking up retirement plans into small, bite-size pieces.

"Don't let anyone tempt you into giving them a definitive answer to the question, 'What are you going to do with your retirement?'" she urges. "Figure it out, step by step, along the way."

3. Failing to communicate your dreams to loved ones. Spending decades of your working life with a spouse or significant other doesn't necessarily mean you've shared all your thoughts and dreams about retirement. Oh, and . . . tell your spouse

"One person wants to go and ski; the other wants to join the Peace Corps. That's a recipe for a problematic retirement," says Carlos Lowenberg, a financial adviser in Austin, Texas.

Another financial adviser, Brad Levin of Legacy Wealth Partners in Encino, Calif., has both spouses fill out a checklist of retirement goals -- separately. The two lists often look very different, he says. "Then the challenge is getting them to find middle ground that leaves both feeling they will have a retirement they can look forward to."

4. Leaping before you look. The retirement hall of shame is full of people whose dreams crashed into reality. "What gives you pleasure during a 10-day vacation isn't necessarily what you'll want from a retirement that lasts 30 years," points out Bob Gleeson, a vice president and the medical director of Northwestern Mutual Life Insurance. A retirement test drive?

The same rules apply to a post-retirement career change. Whether you plan to start a business, move to a village in Italy or get involved in philanthropy, the best idea is to test-drive your plans before you begin. Get the skills you'll need; work in the field for a few months before making the leap. Or spend a few weeks in Sicily before you buy a villa.

5. Underestimating your longevity or health-care costs. You've built up a retirement nest egg, but that doesn't mean you should embark on a spending spree. You need to remember that one member of each couple reaching the age of 65 stands a 50-50 chance of living past age 90, and longevity is increasing all the time.

"It's a joke in this business that the ideal financial plan is one where your money lasts a day longer than you do," says financial adviser Levin. "But the nightmare
scenario is where someone has structured a financial plan that didn't include the possibility of living beyond 90 -- or of the major health-care costs that pile up late in retirement."

6. Counting on consulting. When it comes to pondering a post-retirement career, the field of consulting is a perennial favorite. But how many newly minted consultants does the market really need?

If you're expecting a consulting business to help pay the bills in retirement, test the waters before you dive in. The same is true of other businesses, says Chris Fahlund of T. Rowe Price.

"We've seen people buy franchises with the thought that this isn't really spending money, but investing, because they are putting it into a business to make money," she says.

The glitch, Fahlund notes, is that a lot of franchises don't work out, and the capital invested to acquire them is lost.

7. Overdoing it. Many boomers may want to avoid the lives of endless leisure lived by their parents in retirement. But it's possible to veer too far in the other direction as well, cautions Tom Rogerson, a financial adviser at BNY Mellon.

"How you go about striking that balance is the question that everyone needs to address," he says. To help his clients find a balance, Rogerson asks them what makes them "relax well enough to sleep at night," he says.

"It turns out that the days they slept well were days that they had been productive at something but had also spent time with friends and family," Rogerson says. So the key to reinventing retirement is hanging on to the best parts of working lives, he says, and replacing the rest with more time devoted to family, friends and other passions.

Published May 5, 2008