Money mistakes are a common learning experience from which we can all grow. When you’re already in your retirement phase; however, the results can be a little more catastrophic. It’s much easier to recover from mistakes when you are younger. You simply have more time and opportunities. Retirees depend on their nest egg. Their ability to replenish savings is usually greatly diminished, due to the fact they are no longer generating income from a job. Luckily, you can learn from the experience of others and avoid some of the more common mistakes without having to suffer through these missteps.
1) Not Changing Lifestyle After Retirement
Among the biggest mistakes retirees make is not adjusting their expenses to their new budget dependent life. Those who have worked for many years usually find it hard to reconcile with the fact that food, clothing and entertainment expenses should be adjusted because they are no longer earning the same amount of money as they were while in the work force. For example, you might need to do a little less dining out and learn to enjoy more home cooked meals.
Many retirees also tend to forget to take into account healthcare and long term care costs that usually come into play as a person ages. If you have never considered this before, it’s time to talk to a trusted financial planner to iron out your retirement planning. With some appropriate adjustments to your budgeting and proper planning, you’ll make sure you are set for any eventuality.
2) Failing to Move to More Conservative Investments
Once you have retired, you can’t afford large negative swings in your savings. You regularly hear financial advisors recommending a long term strategy and touting the strategy of leaving money in the market regardless of the ups and downs. That’s because over time, the market, while very volatile at times, has historically ended up rising in the long term. When you retire however, you have to think more short term as you will need to access the cash. It’s still probably smart to keep some money in more aggressive growth investments, but not nearly at the level you did when you were younger. A financial advisor can offer advice on how your investments should be diversified. You might not make as huge gains in net worth, but you will be protected.
3) Applying for Social Security Too Early
Just because you are already eligible to apply for Social Security at 62 does not mean you should. If you start taking benefits at age 62 will get you about 25% less than what you would get on your full retirement age of 66. You will also get 32% less than if you wait until age 70.
If you have the means to pay your bills, try to delay your application for retirement benefits for a few years more. The benefit increase is maxed out by 70 years old and will not increase any further, so that’s the target age you should shoot for.
4) Spending Too Much Money Too Soon
Before finalizing your retirement, you must take into consideration that you will only be living on a fixed amount of money. Oftentimes the amount of retirement savings looks pretty large, but retirees must keep in mind that money will have to last a very long time – hopefully a very, very long time! Avoid the temptation to spend large chunks of that nest egg early in retirement. The temptation to spend your money can be almost iresistable, but discipline is vital. Depleting your money beyond the interest that it earns will hurt the principal and would leave you with nothing after just a few years.
5) Failure To Be Aware Of Frauds and Scams
Retirees unfortunately are among the most targeted for scams. Be sure to consult an advisor prior to making any investment or laying out a large amount of cash on anything. Scammers will prey upon your desire to grow your savings.
Even if you are not retired or about to retire, always keep a certain level of skepticism when it comes to the investments being presented to you. Do your research first: ask about it and search for it online. You might just find out that this whole system is just an elaborate way for people to get money out of you.
6) Cashing Out Pension Too Soon
Retirees are easily swayed by the promise of a higher return once they try to put their money on a particular investment vehicle thus pushing them to cash out their entire pension. This is not always the best move to make: investments are highly unpredictable and it can be difficult to look for one that could pay just as much, or even more, as the pension over the long term.
Remember that cashing out on a pension early oftentimes comes at a big cost. Be extremely wary and weigh your options well. The longer your life, the more you are going to miss out on the benefits of the pension if you have cashed out early.
7) Not Being Effective Tax-Wise During Retirement
Having multiple retirement accounts may sound ideal but you have to remember that each retirement account is being taxed differently. If you do not find a way to take out your money from your assets and your accounts, you could end up paying more taxes that you actually have to.
Finding the most cost-efficient way of being taxed during retirement is a complicated manner so you might want to make sure that you have a trusted financial planner to help you along the way.
8) Supporting Adult Working Children
Family is often hard to refuse, but you have to remember that your savings are fixed for the most part and your ability to earn back money taken from savings is greatly diminished in retirement. Your children are going to be much better equipped to recover from financial difficulties. Unless you are really sure you have the money to spare, avoid giving large monetary gifts or loans, especially if you are already out of the work force.
Remember that you will no longer be earning the same as you did when you still had a job. It is expected that your expenses will have already gone down by this time. This means that whatever money you get should be enough to cover only your personal expenses.
9) Being House-Rich but Cash-Poor
People often pay for their mortgage for most of their life and, by the time they retire, end up with a lot of equity in the home and with little cash left. While houses appreciate in value, the costs of upkeep including taxes, utilities, services, repairs and maintenance is too much for a retiree to handle. Once you have decided to get out of the work force, it is assumed that your children should have already moved out of your house. You can downsize your living expenses by selling your house and moving in to a smaller home that you can afford. You can also invest the remaining money on more predictable income in order to support your new retirement lifestyle.
10) Not Staying Active Socially and Physically
Possibly one of the worst things you can do when you retire is become reclusive and inactive. It’s important to maintain social connections and frequently enjoy the company of friends and family or join social groups and activities that will enable social interaction with peers. The mind is like a muscle – if it is not exercised, its capabilities will fade. So in addition to continuing some sort of regular exercise habit, seniors should also exercise their brains. Reading books, solving puzzles and just simply engaging in conversation are all great ways to keep the brain sharp and functioning well into later life. Becoming reclusive and spending a lot of time in front of the television, while on occasion may offer relaxation, should not monopolize your time. Keeping active will not only help keep you mentally sharp and physically healthy, but will also elevate your mood and help you be happy well into your golden years!