People make lots of mistakes that cost them serious money in retirement. Perhaps that’s not surprising: You’re going down the road toward retirement for the first time. Who knows what pitfalls await?
Thankfully, you’re not completely on your own. Experts and research have uncovered some of the worst ways you can hurt your nest egg after you quit work for good.
Following are a handful of retirement mistakes that can result in losing thousands of dollars — or maybe much more — every single year.
1. Claiming Social Security too early
You’re rightfully eager to start collecting that money you’ve been funneling toward the feds for decades. So it’s tempting to turn on the Social Security spigot as soon as possible. But you might regret that down the line.
Your Social Security benefits accrue the longer you wait, but you can choose to begin taking them as early as age 62. That’s four or five years before your full retirement age (FRA) depending on your date of birth.
Claiming benefits before your FRA means you start drawing money that much sooner, but it also means each check shrinks. Waiting until your FRA means your benefit won’t be reduced, but if you were to wait even longer — until age 70 — you’d get an even bigger benefit.
It can be a big difference. If you think of your full retirement benefit as being 100%, then waiting until age 70 means getting 124% of your check if you’re eligible for an FRA at age 67. Conversely, claiming as early as you can drops your check to 70% of that full benefit.
2. Spending too much too soon
If you’re the rare person in America to have adequately padded their retirement savings to their liking, congrats! Time to spend, right? Maybe not.
A Morningstar analysis determined that the optimal withdrawal amount from retirement savings during the first decade of retirement is 3%.
That’s assuming you started making those withdrawals in 2024. Waiting means slightly higher optimal starting rates — like 3.1% or 3.2% — because of inflation.
That’s for taking money out of tomorrow’s retirees’ savings. For people who retire today, inflation means an optimal starting withdrawal rate of 2.8% if you want to maintain a good chance of not outliving savings.
If there’s ever been a time when consulting with an expert makes sense, this is it. If you’ve got $100,000 or more in savings, talk to your financial advisor. If you don’t find one. Companies like SmartAsset offer a free matching service that can match you to vetted, fiduciary financial advisors in minutes.
3. Waiting too long to invest in annuities
Annuities can be confusing, and a common temptation is to put off investing in them.
Don’t do that. Buying one kind of annuities — namely, a fixed one — while you’re in your 50s can help you accumulate. Then, when retirement rolls around, you can turn that account into a monthly income for life.
If you’re over 50, take a minute and visit Annuity.org to check out your options.
4. Not maintaining exposure to stocks
As we get older, it’s tempting to avoid risk by investing in stocks. The problem? Stocks are one of the few investments that keep up with inflation.
You many want to reduce your stock exposure, but experts recommend keeping 30-40% of your long-term savings in quality stocks.
Stocks help your portfolio keep pace with inflation, ensuring your purchasing power doesn’t erode over time. Without them, you risk running out of money as living costs rise.
A balanced portfolio with a mix of stocks and fixed-income investments can offer both stability and growth. Speak to a financial advisor to determine the right allocation based on your goals and risk tolerance.
5. Not researching your next home
Where you live in retirement can have a significant impact on your financial security. Moving to a high-cost area or failing to account for property taxes, maintenance, and healthcare accessibility can eat away at your nest egg.
Research is key when deciding whether to downsize, relocate, or stay put. Consider the total cost of living, including housing expenses, utilities, and proximity to essential services. Also, factor in how your home supports your lifestyle—will it still meet your needs as you age?
By carefully evaluating your options, you can avoid costly mistakes and find a home that fits both your budget and your retirement goals.
Plan Smarter, Retire Better
It’s good to always think long and hard about selling when things are bleak. Have a strategy. Don’t panic.
Retirement should be a time to relax, not worry about money. By avoiding these costly mistakes and making informed financial decisions, you can enjoy the retirement you’ve worked so hard for. Take the time to review your strategies and adjust as needed—you deserve peace of mind in this new chapter of life.
Add a Comment