Making big financial mistakes can sabotage the comfort of your golden years. You can wreck even the best-laid plans with a single poor choice.
Be aware of these common blunders — some that many people make well before retirement age and others that happen after they leave the workforce — and take action to avoid them.
Mistake No. 1: Failing to plan for medical expenses
Medicare kicks in at age 65, but that is not the end of your medical expenses. Fidelity estimates that a couple, both age 65, who retired in 2023 would need $315,000 of their own money for medical expenses over the course of retirement.
Such costs include deductibles and premiums associated with Medicare plus out-of-pocket costs.
Take action: Start by reading “How to Pick the Best Medicare Supplement Plan in 4 Steps.” Also:
- Stay healthy by exercising regularly and maintaining a healthy weight.
- Look into long-term care insurance. It’s cheaper if you sign up when you’re younger.
Mistake No. 2: Underestimating costs
Retirement costs can be surprisingly high. You may find that to manage your costs, you need to earn some extra income. It’s not the end of the world, but possibly not what you had in mind.
If you do take this path, check the Social Security Administration’s rules for working while receiving Social Security benefits.
Take action: There are a lot of jobs you can do from home and many ways to earn a little money on the side. If you’re lucky, it may be something you love to do as a hobby — gardening, tending pets, caring for children or working as a handyman.
For more, check out “21 Ways Retirees Can Bring in Extra Money.”
Mistake No. 3: Celebrating retirement with a big purchase
You’ve undoubtedly got a wish list for retirement. But hold off on making major purchases at first. Instead, give retirement a spin and see what you’re spending each month.
Track expenses — every single one. A year’s tracking gives the best picture because it includes both one-time and seasonal expenses.
Take action: Keep receipts, watch bank and credit card accounts online on a weekly basis, and update your tracking regularly:
- Try online budget programs. Money Talks News partner YNAB (You Need A Budget) lets you track expenses automatically. Other options include Mint and BudgetTracker.
- If you prefer, track expenditures manually and offline on a spreadsheet.
Mistake No. 4: Helping out adult kids
Many parents set themselves up for a crisis in retirement by supporting adult children financially.
Adult children still have time to pay off any college loans and save for retirement. Their parents — in other words, you — are running out of time to save for the golden years ahead.
Take action: Make a concrete plan with goals and deadlines for gradually withdrawing financial help from your kids. Then:
- Discuss the changes with your kids and help them learn to budget.
- Model financial restraint and responsibility for your kids.
Mistake No. 5: Claiming Social Security too soon
Waiting to claim Social Security benefits is one of the best investments around. As we point out in “12 Ways to Maximize Your Social Security Checks“:
“If you start receiving benefits right at age 62, your checks will be forever 20% to 30% smaller than if you had waited until you reached your full retirement age.”
A Social Security Administration table shows the reduction for taking early Social Security benefits depending on the year you were born as well as listing the range of full retirement ages (FRA) by year of birth.
Take action: Go to the Social Security Administration’s website to see your estimated benefits. If you’ve paid into the Social Security system while working, you can create an account and pull up a statement showing what you’ll earn by claiming benefits at various ages. Also:
- Keep your current job if you can and delay retirement. Or get a part-time job that helps you hang on longer before claiming benefits.
- Hire a certified financial planner to review your retirement plan, income and expenses with you.
Mistake No. 6: Forgetting about the taxman
The IRS won’t disappear from your life when you retire.
For instance, traditional tax-deferred retirement plans like 401(k) plans and IRAs require you to withdraw a minimum amount each year (a required minimum distribution or RMD) beginning at age 73. If you don’t take that income, you could be hit with a big penalty.
Good planning — especially before retirement — can help manage the tax bite. Money Talks News founder Stacy Johnson says one strategy is to roll a portion of retirement savings into a Roth retirement plan, which has no minimum distribution requirements.
Roth plans require taxes to be paid before the money goes in. You withdraw the funds tax-free later. The strategies you use will depend on your income now and what you expect it to be after retirement.
Take action: Make a plan — or stop by the Money Talks News Solutions Center to find a great financial adviser who can help you craft a strategy — that takes taxable retirement income into account.
Mistake No. 7: Ignoring estate planning
Get your affairs in order before you’re ill or elderly. That way, you’ll control where your money and possessions go. It’s a kindness to your heirs, too, because they won’t be saddled with the task.
Take action: Make or update your will. If appropriate, make a revocable living trust.
- Sign a durable power of attorney naming someone you trust to make your legal and financial decisions if you cannot.
- Assign health care power of attorney to someone to make your medical decisions if you’re unable.
Mistake No. 8: Investing too conservatively
As retirement grows nearer, it seems prudent to invest more conservatively. But you could live another 20 or 30 years. Savings held too conservatively shrink because of inflation. A portion of your funds needs to grow.
“Never taking risk means taking a different risk,” Stacy says.
Take action: Learn about investing so you can be confident about taking measured risks to earn gains, even as you grow older. It’s not difficult to follow the basic rules for sane investing, including how to spread risk among diverse holdings.