Retirement should be the golden period of your life, a time to savor the fruits of decades of hard work. Yet, many find themselves struggling due to avoidable mistakes.
Zack Swad is the President of Swad Wealth Management, LLC, located in Santa Rosa, CA. He specializes in retirement planning for people aged 50+ and serves clients nationwide. He has over 12 years of industry experience and has created over 600 financial plans. He shared the common pitfalls of retirement and how you can sidestep them for a more secure and enjoyable retirement.
1. They Don’t Maximize Their Social Security Benefits
Oftentimes, I see people taking their benefits early or waiting until Full Retirement Age (FRA), which is between the ages of 66-67. For single individuals, delaying your benefit may result in significantly more income throughout their retirement lives, assuming they are in relatively good health.
For married and divorced couples, there are various claiming strategies that could substantially improve their expected lifetime benefits, especially when one person is a significantly higher earner than the other. By optimizing their Social Security drawing strategy, some people are estimated to increase their lifetime income by over $100,000 in retirement, so it makes sense to spend some time figuring this out.
2. They Don’t Consider Which Accounts To Draw First or if They Should Do Roth Conversions
The traditional wisdom is to draw from your taxable accounts such as bank accounts and brokerage accounts, then tax-deferred accounts such as traditional IRAs and 401(k)s, and then tax-free accounts such as Roth IRAs. Unfortunately, this traditional wisdom often falls short, especially when planning to retire prior to age 70.
By understanding the tax ramifications of each account and using tax projections, people might save up to hundreds of thousands of dollars in taxes throughout their retirement, especially if they have a significant amount of assets.
3. They Underspend During Their “Go-Go” Years
This might be the biggest mistake of them all, but it is the most difficult one to address. People who have saved a nice nest egg for retirement have done so by being strong savers. They’ve worked all their lives “climbing up the mountain,” and that has served them well to get them to the point that they can successfully retire.
Unfortunately, those muscles that helped them get up the mountain aren’t the same exact muscles used to go down the mountain. I see people with millions of dollars who are afraid to spend their hard-earned money. They worry that they’ll run out if they do. However, what often happens is that these people die with even more money and regret not doing more when they are younger, healthier, and more active. They regret not making that extra trip, not having that experience with their family, etc. While it’s important to not overspend in retirement, it’s equally important to ensure balance.
