Retirement should be a time of relaxation and living a worry-free lifestyle. But that is not the reality for many older Americans whose retirement years turn into financial nightmares. Even if you think that you made all the right moves before retirement, don't assume that you are in the clear. Avoid turning your golden years into a struggle to survive by avoiding these six common mistakes retirees make when it comes to their finances.
Six Post-Retirement Money Mistakes
1. Maintaining your same lifestyle, without planning. You shouldn't be forced to live a life of deprivation after retiring, but without adequate planning, most people won't be able to stick to the same level of spending they had when they were still bringing home a paycheck. That forces them to cut back on discretionary expenses like eating out or spending money on entertainment. That, in turn, leads to stress or even depression, in a time that should be enjoyable. Envision what you want retirement to look like, how much you want to spend, and develop a plan ahead of time. On the other hand, you may find yourself with more time and enjoying cooking at home and spending free-time pursuing hobbies and catching up with family as opposed to expensive nights out.
2. Refusing to downsize. This goes hand-in-hand with wanting to maintain the same lifestyle after retirement. Retirees often get stuck holding onto their house for too long. The maintenance becomes too much and the house becomes run down and difficult to sell Retirement might be the perfect time to consider selling your larger home and move into something smaller and more manageable. Perhaps even an apartment or condo. Not only will it relieve you of a costly mortgage and home maintenance, but any extra equity in your home will provide a cushion of cash for you.
3. Applying for Social Security too early. Try not to claim your Social Security benefits as soon as they become available. If you take your benefits as early as possible, you are leaving a lot of potential money on the table. Those who are lucky enough to have substantial retirement savings or another source of income may find it beneficial to hold off until your benefits reach their maximum level.
4. Spending a large chunk of money too soon. It is terribly tempting to finally buy that RV or boat you had your eye on for years now that you have the time to use it. It is often wise to wait and see how you actually adjust to retirement for a few months, or even longer, before spending your nest egg and reducing your ability to earn interest on that money for years to come.
5. Investing conservatively too early. The average retirement period may last 30-35 years, longer than a full career for some! The idea of shifting your investment portfolio to a very conservative allocation too early into retirement runs the risk of running out of money too soon. The impact of inflation on your living expenses, healthcare, and potentially higher retirement travel expenses may prohibit your portfolio from continuing to meet your income needs if you invest too conservatively. Target setting aside anticipated expenses over the next 3-6 years in relatively conservative investments to provide withdrawal needs in the event of a sustained downturn in the market and consider investing the rest toward growth and appreciating assets to provide for the later years of retirement.
6. Making mistakes when it comes to taxes. Many new retirees fail to take advantage of methods when it comes to paying taxes. Taxes are complex, and it is easy to make the wrong tax move which can end up costing you a lot of money. Ideas like converting to Roth IRAs in the early years of retirement or passing on charitable contribution strategies may leave a lot of money on the table.
Do you want even more advice on the best way to maintain your financial life after retirement? The sooner you talk with your financial advisor, the better.
Investment Advisory Services offered through EnRich Financial Partners LLC, a Registered Investment Advisor.
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