5 Common Mistakes Retirees Make
By Preston Rosamond
Retirement is one of the biggest financial transitions you’ll make in life. You go from earning a paycheck and growing your nest egg to depending on it and trying not to outlive it. It’s a delicate dance—one that requires extra monitoring to make sure things go as planned. Over the years, I’ve seen retirees make the same costly mistakes over and over again.
Today, let’s talk about 5 of those common mistakes retirees make (and what you can do to avoid them).
1. Overspending In Retirement
What will you do with your newfound freedom in retirement? Many people start by doing all the things they didn’t get to do while working—traveling the world, picking up a new hobby, remodeling their home, and the list goes on.
But many people underestimate the amount of money they’ll spend in those first few years of retirement. With so much extra time on your hands, it’s easy to make a lot of little purchases that add up to a lot over time.
My advice: Create a detailed budget and stick to it. Yes, you can budget for extras such as a vacation or a new hobby, but make sure you know how it will affect your nest egg before you follow through with it.
2. Underestimating Healthcare Costs
Retirees receive Medicare after age 65, but most of the time this isn’t enough to cover chronic healthcare needs in retirement. For example, did you know dental, basic vision, over-the-counter medication, and long-term care are not covered by Medicare? (1)
The average person will spend $122,000 in out-of-pocket medical expenses from age 70 to death. Even worse, 5% of those over age 70 will pay over $300,000 and 1% will pay more than $600,000. (2) Are you prepared to cover these costs in retirement?
My advice: Cautiously watch your spending in retirement. Ensure there is a financial margin in place to protect you when larger medical bills hit later in life.
3. Overreacting To Stock Market Volatility
Retirees have a tendency to want to play it safe in the stock market. They want to invest on the conservative side and protect their nest eggs as much as possible. Believe me, I understand! But when you play it too safe, your nest egg can’t keep up with inflation and you end up losing money down the line.
My advice: Your retirement may last anywhere from 20 to 30 years—as much time as you’ve spent in the workforce. With an investment timeline this long, don’t get caught up in investing conservatively just to avoid short-term volatility. When your portfolio is too conservative, inflation becomes the biggest threat to your assets.
4. Taking Social Security Too Early
Don’t assume it’s best to start collecting Social Security at age 62 (or at full retirement age, for that matter). If your full retirement age is 66, for example, you could receive a 32% increase in monthly benefits by waiting to collect Social Security until age 70. (3) This means if your standard benefit amount is $1,500 per month, you could receive $1,980 by waiting four more years. This equates to thousands of extra dollars over the course of your retirement.
My advice: Consider the size of your nest egg, your retirement date, and the current state of your health when deciding when you should start collecting Social Security. Calculating when to start collecting is both an art and a science. If you need help, reach out to a trusted financial advisor who can help you run the numbers.
5. Miscalculating Taxes On Retirement Income
Your retirement accounts are all taxed differently. If you don’t have a strategic withdrawal plan in place, you could end up with a large tax bill at the end of the year. Although not a one-size-fits-all solution, a good rule of thumb is to take money out every month using a combination of retirement accounts. When you take a little from each account, you ease your tax burden.
My advice: Speak with a financial planner or tax advisor about creating a tax-efficient distribution strategy for retirement. This professional can look at your tax bracket, retirement accounts, and Social Security to help you withdraw money in the most tax-efficient way.
How We Can Help
We at The Rosamond Financial Group are here to help you manage your wealth and avoid these costly mistakes in retirement. We help with everything from making a realistic budget you can follow to creating a tax-efficient distribution plan that keeps more money in your pocket. To learn more about our services, call our office at 830-798-9400 or email smrosamond@rosamondfinancialgroup.com.
About Preston
Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with nearly two decades of industry experience. He provides comprehensive wealth management and financial services to individuals, professionals, and families who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch and a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing smrosamond@rosamondfinancialgroup.com or schedule a call with our online calendar.
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(1) https://www.cnbc.com/2019/04/02/health-care-costs-for-retirees-climb-to-285000.html