There are way too many people who choose to go with their gut, when planning for Florida retirement. Investopedia’s recent article entitled “7 Counterintuitive Retirement Strategies” discusses some big misconceptions people commonly believe when it comes to retirement planning—along with the correct ways of thinking and approaches.
The first myth is that you should constantly be moving in and out of stocks, timing the market and that a buy-and-hold strategy is really a losing one. However, many studies have repeatedly shown that it is often less risky to hold stocks for longer periods. You know, it’s tough to find a 10-year period when the stock market had a negative return. Stocks and real estate are the two big asset classes that have outpaced inflation over time, and—even with a few bearish periods—they’ve slowly gone up in value and will likely continue to do the same. However, that doesn't mean you can simply fund and forget. Periodically monitor your portfolio and its performance.
Another misconception is that if I don't sell a losing position, then I don't have a loss. That is just hogwash. You’re losing money in a declining stock or other security, despite the fact that don’t sell it. You won't be able to claim a loss on your tax return, if you don't actually divest. However, the difference between realized and recognized losses is only for taxes. Your actual loss is the same, no matter what is recognized on your tax return.
Myth Number Three is that you can just let your money managers handle it. While professional portfolio management is a great choice in many cases, you still need to be personally engaged in the management of your finances. You can assign market trading and day-to-day decisions to a pro, but don't leave the overall course of your finances totally with your broker or banker.
Next, don't sell an investment and then buy it back again. Instead, just hold it. No, you can (and probably should) sell a depressed holding and declare a capital loss prior to year’s end to recognize a tax deduction. Why hold on? If the asset does recover, you could plunge in again. Buying an identical stock 30 days before or 30 days after the date of the sale of the original triggers the IRS's wash sale rules. As a result, your capital loss claim will be void.
Another misconception is that my Social Security benefits will be enough to pay for my Florida retirement years. This is not true. The average monthly Social Security payment for retirees was only $1,471 in June 2019. Benefits vary a lot, but your benefits were never designed to be more than 40% of your pre-retirement wages.
The next myth is that I should put all of my Florida retirement money in totally secure income-oriented investments, especially after I retire. That is not necessarily true. Low-risk vehicles, of course, are more of a priority at this point in your life. However, most retirees should have at least some of their savings in growth and equities in some form, either through individual stocks or mutual funds.
The final misconception is that Florida retirement is a long way away, and so I needn’t worry about it for a while. This is a very dangerous myth, because you’ll be poor and dependent on relatives if you don't get this straightened out ASAP. It takes time for your investments to grow to what they’ll need to be to keep you through your retirement. Get going! If you would like to discuss how a Florida living trust can assist you in passing your wealth to your loved ones, schedule a complimentary consultation with Welch Law, PLLC.
Reference: Investopedia (Oct. 21, 2019) “7 Counterintuitive Retirement Strategies”