Existing and prospective retirees can undermine their golden years in a number of ways, such as undersaving or premature Social Security claim.
Concerns about how to pay for the golden years replace worries about the grind of the workday as an increasing number of baby boomers begin to consider retirement.
As retirement draws near, consider some of these questions. However, make sure you are making the right decisions long before you punch out.
To assist, we’ve listed the most common mistakes people make when planning for retirement and how to avoid making them. Take a look to see if any sound familiar.
Retirement should be a time to relax, enjoy your hobbies, and travel the world. However, many people make mistakes that can jeopardize their financial security and happiness during their golden years. Here are 10 common retirement mistakes and how to avoid them:
1. Not Changing Lifestyle After Retirement
Many people continue to live the same lifestyle they did before retirement, even though their income has decreased. This can lead to financial problems, as they may not have enough money to cover their expenses.
Solution: Create a realistic budget and downsize your lifestyle if necessary. This may mean moving to a smaller home, selling a car, or cutting back on travel.
2. Failing to Move to More Conservative Investments
As you approach retirement, it’s important to move your investments to more conservative options. This will help to protect your savings from market volatility.
Solution: Gradually shift your investments from stocks to bonds and other fixed-income securities. You may also want to consider investing in a target-date retirement fund, which automatically adjusts your asset allocation as you get closer to retirement.
3. Applying for Social Security Too Early
You can start receiving Social Security benefits as early as age 62. However, if you do so, your benefits will be reduced. It’s generally best to wait until your full retirement age to start receiving benefits, as you’ll receive a higher monthly payment.
Solution: Delay filing for Social Security until your full retirement age, which is 66 or 67, depending on your birth year.
4. Spending Too Much Money Too Soon
It’s tempting to spend more money in retirement, as you have more free time and may be traveling more. However, it’s important to be mindful of your spending and avoid depleting your savings too quickly.
Solution: Create a retirement budget and stick to it. Consider working part-time or taking on a side hustle to supplement your income.
5. Failure To Be Aware Of Frauds and Scams
Retirees are often targeted by scammers who try to steal their money or personal information. It’s important to be aware of these scams and take steps to protect yourself.
Solution: Never give out your personal information to anyone you don’t know and trust. Be wary of unsolicited emails, phone calls, and letters. If you’re unsure about something, contact your financial advisor or the authorities.
6. Cashing Out Pension Too Soon
If you have a pension, you may be tempted to cash it out when you retire. However, this can be a costly mistake, as you’ll likely have to pay taxes and penalties.
Solution: Keep your pension invested and take distributions as needed. This will help to ensure that you have a steady stream of income in retirement.
7. Not Planning for Healthcare Costs
Healthcare costs can be a major expense in retirement. It’s important to plan for these costs so that you’re not caught off guard.
Solution: Enroll in Medicare and consider purchasing supplemental insurance to cover the costs that Medicare doesn’t cover. You may also want to consider opening a Health Savings Account (HSA) to save for healthcare expenses.
8. Not Having a Plan
Many people retire without having a plan for how they’re going to spend their time and money. This can lead to boredom and financial problems.
Solution: Create a retirement plan that outlines your goals and how you plan to achieve them. This plan should include your financial goals, your travel plans, and your plans for staying active and engaged.
9. Not Working With a Financial Advisor
A financial advisor can help you create a retirement plan, invest your money wisely, and avoid costly mistakes.
Solution: Consider working with a financial advisor who specializes in retirement planning. They can help you make the most of your retirement savings and ensure that you have a secure financial future.
10. Not Enjoying Retirement
Retirement should be a time to enjoy your life. Don’t spend all your time worrying about money or planning for the future. Make time for the things you enjoy, such as spending time with family and friends, traveling, and pursuing your hobbies.
Solution: Make sure to schedule time for fun and relaxation in your retirement. This will help you to stay happy and healthy throughout your golden years.
By avoiding these common mistakes, you can set yourself up for a happy and financially secure retirement. Remember, retirement is a marathon, not a sprint. Take your time, make wise decisions, and enjoy your golden years.
Planning to work indefinitely
Like me, a lot of baby boomers plan to work past 65, either because it’s our obligation to do so or because we want to maximize our Social Security benefits. But that plan could backfire.
Consider this: 55% of workers expect to work after they “retire”, according to the Transamerica Center for Retirement Studies. Yet, you cant count on being able to bring in a paycheck if you need it. While more than half of todays workers plan to continue working in retirement, 19% of adults ages 65 and older are actually employed, according to Pew Research Center.
The Transamerica Center for Retirement Studies states that there are numerous reasons why you might have to quit your job and take an early retirement. Health-related problems are a big part, whether they are your own or a loved one’s. Employer-related concerns like buyouts, layoffs, and downsizing are also relevant. Maintaining current skills is another reason why older workers may find it difficult to secure employment. The practical advice is to plan for the worst and start saving early and often. Just 22.8 percent of baby boomers surveyed by Transamerica have a backup plan to replace their retirement income in the event that they are unable to work.
Avoiding the stock market
One of the biggest mistakes investors can make when saving for retirement is to avoid stocks because they seem too risky. True, there have been many ups and downs in the market, but since 26 February, stocks have returned an average of roughly 10% annually. Bonds, CDs, bank accounts and mattresses dont come close.
“If your goal is to keep your money safe, conventional wisdom may indicate that the stock market is risky and should be avoided,” says Elizabeth Muldowney, a financial adviser with Savant Capital Management in Rockford, Illinois. But doing so comes with low returns, and by staying out of the stock market, you have actually increased your risk of your money not keeping up with inflation rather than lowering it. “.
We prefer inexpensive exchange-traded funds (ETFs) and mutual funds because they provide an inexpensive alternative to purchasing individual stocks, allowing you to own a stake in hundreds or even thousands of companies. Additionally, Murphy of Fidelity Investments advises against retiring your stock portfolio once you reach retirement age. Nest eggs must continue to increase in order to fund a potential 30-year retirement. But as you get older, you do need to gradually cut back on your exposure to stocks in order to lower risk.
9 Common Money Mistakes People Make When Retirement Planning And How To Avoid Them
FAQ
What are the most common retirement mistakes?
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Rank
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Most Common Mistakes
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Share
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1
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Underestimating the impact of inflation
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49%
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2
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Underestimating how long you will live
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46%
|
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3
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Overestimating investment income
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42%
|
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4
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Investing too conservatively
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41%
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What is the #1 regret of retirees?
What is the most common mistake that retirees make when choosing where to live?
How can I avoid the worst retirement mistakes?
To avoid the worst retirement mistakes, you have to be realistic about your plans and think ahead. Unfortunately, it’s too easy to make the wrong financial moves when preparing for retirement. According to the Federal Reserve, 31% of non-retired adults believe their retirement savings are on track.
Do retirement mistakes increase your chances of outliving your money?
Retirement mistakes can increase the chances of outliving your money. Getting an objective second opinion can help. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.
Are You a 69% of people not on track with retirement?
If you’re part of the 69% of people not on track with your retirement, you can start (or continue) your journey by sidestepping these 11 financial mistakes. If you think your retirement savings aren’t on track, make changes while you are still working and create a financial plan.