Retirement requires a significant amount of planning. Make sure you get the most of your financial plan by avoiding these 8 common retirement mistakes.
1. Not Changing Lifestyle After Retirement
One of the biggest mistakes is not adjusting to a new budget in Retirement. It becomes very hard to adjust to a new budget in a scenario where you are not earning as much as you were while working. That’s why we stress saving so much that your plan can withhold continuing your lifestyle into your retirement years. Also, some retirees tend to forget the expensive costs of health care and long term care which can put pressure on your resources.
2. Failing to Move to More Appropriate Risk Based Investments
In retirement, depending on the plan, most folks can’t afford wild market swings in their portfolios. Although you can’t time the market, it is very important to make sure your risk strategy matches your overall financial plan. You don’t want to be more aggressive than you need to be.
3. Applying for Social Security Too Early
Even though you’ve paid into Social Security for your entire working history, sometimes is doesn’t make sense to take it right away. The earliest you can take Social Security is 62, but taking it then can result in a 25% reduced benefit compared to taking it at your Full Retirement Age. Each year you delay the benefit amount increases by 8% each year until age 70.
4. Spending Too Much Money Too Soon
As you enter this next stage of life, it’s important to figure out how much you can spend in a given year. Sometimes it’s easy to see that large nest egg you saved and fall into the temptation of spending large chunks of it. A Financial Plan & Discipline is key to making sure you do not outlive your resources.
5. Failure to Be Aware of Fraud or Scams
Unfortunately, retirees are among the most targeted demographic when it comes to scams. Many schemes prey on retirees to make money off of their nest egg. Be smart, diligent, and consult with a Financial Planner before making any big financial decisions. As the saying goes: “If it’s too good to be true, it probably is.”
6. Not Being Tax-Efficient During Retirement
We always stress the importance of having different buckets of wealth. This simply means some monies are tax-deferred, some are tax-free, and are some taxable. When it comes time to start taking distributions from your savings, the tax game begins on determining the best place to take from. For example, it may make more sense to take from a Roth IRA that’s 100% tax-free instead of your pre-tax 401(k) which would trigger income tax, or in a taxable account, which investments to sell to minimize capital gains tax. Being smart about how you take income from your nest egg can result in dramatic savings over the years.
7. Not Staying Active Socially and Physically
One of the worst things one can do when retired is become inactive. It’s not only important to keep financially healthy, but also physically healthy and mentally sharp. The mind is a “muscle” that needs to be exercised as well. If not, some mental capabilities will fade and make it more difficult to enjoy the retirement you worked so hard to build.
8. Supporting Adult Working Children
See blog Cutting the Financial Cord