Retirement should be when you relax, travel, and enjoy your free time without any work responsibilities, long commutes, or endless board meetings. Unfortunately, that’s a dream that most people never attain due to poor financial planning.
While retirement should primarily be about spending your hard-earned money, overspending could quickly deplete your savings and leave you struggling.
Here are 12 common retirement mistakes that almost everyone makes.
1. Failing To Calculate Income in Retirement Accurately
Failing to think about how much money you’ll need to retire can be disastrous. The Center for Retirement Research reveals that most calculations are inaccurate, which leaves most retirees with limited financial resources facing risks like investment loss, outliving their money, unexpected health expenses, etc.
You can avoid this mistake by estimating your expenses and accounting for extra costs such as emergencies, repairs, vacations, etc. After determining your expenses, you need to determine if your current retirement savings will be enough to cover them.
On average, if you were to withdraw $60,000 annually for 25 years, you would need at least $1.5 million to retire comfortably.
2. Overspending Too Early in Retirement
Another common mistake most retirees make is to assume they have a lot of money. They will go on vacation for weeks, explore new hobbies, or start buying expensive items. Spending a lot of money early in retirement could quickly deplete your retirement income. Furthermore, you must take advantage of potential returns your investments would have brought over the next few years. You can avoid this mistake by consulting a financial advisor who’ll guide you on your retirement budget and how to plan effectively for sustainability.
3. Poor Tax Planning and Ignoring Tax Implications
Many retirees do not understand that each retirement account has different tax implications. You may withdraw from an account with high tax implications, which limits your income. Understanding which accounts are non-taxable and which are taxable will help you avoid this mistake.
Talking to a financial expert can also help you learn the best way to withdraw money, depending on your circumstances.
4. Failure to Balance Your Portfolio
While being too conservative with your investments might seem like a good idea, over time, you realize that your investments earn a low rate of return and expose you to inflation risk. You don’t want to risk outliving your money.
The best approach is to consult a financial advisor on having a diversified portfolio. They’ll advise you on what asset classes to invest in to reduce your inflation risk and ensure you get maximum returns on your investment.
5. Disregarding Healthcare Costs
Many retirees assume that their healthcare costs won’t change in retirement. Sadly, this is far from the truth as you’re likely to spend more due to health issues that come with age. Planning for healthcare expenses by understanding what your health insurance covers and taking advantage of health savings accounts can help you manage your retirement costs.
It will also free up more money for other daily expenses.
6. Falling for Scams and Pyramid Schemes
Most con artists know that seniors are gullible and likely to believe anything that guarantees great returns. Tax returns, social security benefits, and other scams entice retirees. Avoid falling prey to fraud and watch out for suspicious emails, texts, or calls from unknown people.
7. Failing To Consolidate Your Accounts
You may accumulate several retirement accounts throughout your career. Unfortunately, most retirees forget about some accounts and lose money in the process. Consolidating all your accounts into one place can help prevent this mistake.
For example, if you switch jobs, plan to roll over your previous contributions into a 401(k) with a new employer or put it into a private IRA.
8. Failing To Review Your Retirement Plan and Goals
Some retirees don’t need to review their retirement plans as they feel comfortable with their savings. Unfortunately, they fail to consider unexpected health expenses or sudden family losses, which can destabilize their income.
Regularly reviewing and understanding where you stand can help you better plan for the future. It can also make sure that your savings can comfortably meet your needs and adjust to market conditions. Additionally, reviewing your retirement plan helps you stay compliant with changing regulations and evaluates your investment fees to make sure they’re not unreasonable or excessive.
9. Not Seeking Professional Advice
Most retirees after retirement don’t feel the need to consult a professional financial expert. However, this ends up being a costly mistake as some people don’t know how to budget for their retirement or account for extra expenses.
Working with an expert is crucial as they can help you assess the performance of your investment accounts to determine if there’s a need for adjustment to optimize your portfolio. They can also evaluate your current income and devise a strategy customized to your needs. Furthermore, they can help you stay on track and adapt to unexpected changes.
10. Relying Solely on Social Security Benefits
While having social security benefits is great, you may need more income to cover your daily expenses and other sudden costs that may come with retirement. Social security is meant to supplement your retirement income and not act as your savings. You need separate savings to cover your retirement expenses, like an IRA or 401(K).
11. Having Debt in Retirement
It’s tempting to carry debt into retirement with the hopes of clearing it with your retirement funds. Unfortunately, your retirement income is less than your previous salary, which makes debt a liability that further limits your income. You can achieve better financial security the less debt you have in retirement.
12. Not Having an Estate Plan
Not having an estate plan means you don’t have control over how your assets will be distributed when you’re incapable of making decisions or upon death. That could lead to family disputes, and you may be unable to make medical decisions when you become incapacitated. Retirees need to create an estate plan and update it if anything changes in retirement.
Enjoy Retirement
Avoiding these common retirement mistakes can help you retire comfortably and enjoy your retirement years. If you make any of the above mistakes, remember to speak to an experienced financial planner. They can help you restrategize and find ways to achieve financial freedom as part of your retirement planning.
Read More:
- Retirement Crisis Looms as Americans Struggle To Save
- 10 Ways Frugal People Save Money for Their Retirement
- The 5 Best States To Retire (And 5 Worst)
