Yes! You have spent a significant percentage of your adulthood working. You’ve completed your assignment and hung your boots – or helmet, suit, stethoscope, gavel, etc.
Now, it’s time to kick back and relax while shifting your priorities from making to preserving your money. Unfortunately, there are some hard-to-spot financial errors and what you should not do in retirement that often bring the anticipated good times to an abrupt halt, and they constitute a significant percentage of retiree concerns.
That is why Americans between 35 to 65 years face a retirement savings shortfall of $3.83 trillion, with 41% of families estimated to run short of money eventually. Perhaps it’s due to a lack of proper planning, difficulty adjusting to the new reality, or medical challenges.
Regardless of the reasons for these staggering numbers, understanding these mistakes gives you an edge in identifying, avoiding, and preparing for them.
So, let’s see why retirement is important and the ten things you should not do in retirement.
Why is Retirement Planning Important?
With a constantly improving healthcare system and the increasing awareness and adoption of healthy living practices, you can live 25 years after retirement. Now, that’s exciting news if you are prepared for it. But if you are not, very few things are more terrifying than having more days and less money.
The average Social Security check in 2022 is about $1,550 monthly, which is not enough for a comfortable standard of living for a retiree. Medicare, the main insurer for retired seniors, also does not cover the cost of health care in old age, even though 20 percent of 65-year-olds rely on long-term assistance for more than five years.
Ultimately, life continues after retirement. While you may discover a new purpose post-retirement life or choose to continue your daily lifestyle free from financial worries, retirement planning can help set the pace to achieving these goals.
So, you can seek the services of a fiduciary financial advisor to give you tailored financial advice for retirees and ensure that you save up enough money, maximize your income streams, check your risk limit, and protect yourself from unexpected market shifts.
Are you considering your options for a comfortable and secure retirement? Whether you’re years away or nearing retirement age, it’s essential to have a detailed plan. Interactive Wealth is here to guide you every step of the way.
What are the Main Retirement Risks and Pitfalls?
Retirement should be celebrated as a reward for years of hard work.
However, there are some common risks older people face that put an end to the anticipated stress-free days of retirement ahead if they are not prepared.
Some of these retirement mistakes to avoid include:
- Overspending – Even though your income will significantly reduce, the expenses never stop coming. So, it is often easy to overspend, especially when trying to live your best life.
- Not diversifying your portfolio – People make this common retirement mistake when they try DIY retirement planning. Putting your eggs in one investment basket is easy without an expert financial planner, and even if it is a good investment for retirement, that is a considerable risk.
- Diverting from the plan – It’s one thing to make plans and another to stick to them. Completely veering from the structure because of a fear of missing out on a trending scheme or fear of market speculation is one of the common mistakes retirees make.
- Then there are retirement problems that can’t be avoided, like a health challenge or market downturn. However, the good news is that you can manage all these risks with proper IRA retirement planning, discipline, and the right strategies.
10 Things You Should Not Do When Retiring
Retirement is often met with mixed emotions; relief for what was, uncertainty and excitement about what’s ahead, and doubts about what not to do in retirement.
So, while you are probably looking forward to all the things you want to do in the years after retirement, here are ten things you should NOT do when retiring:
1. Ignoring the implication of the process
The change is as swift as it is life-altering, from daily routines, goals, processes, and working families to having nothing to do every day. Most people ignore the coming changes and face retirement cold turkey.
That is why retirees often lose themselves and even end up depressed weeks after retirement. An alteration as significant as that can require some time to adjust. So, take that time to structure a well-planned retirement, figure out the new normal, and discover a new purpose.
2. Not having an updated financial plan
A recent report has shown that 64% of Americans will have only $100,000 set aside in their retirement accounts. Even though that may sound like a lot of money, it is not enough to sustain a post-retirement life.
So, to avoid nipping your dream retirement life in the bud as a result of financial stress, seek the services of a professional financial advisor for retirement planning to create a plan considering your age, location, general health status, and your chosen lifestyle.
Also, review the plan as any parameters change to avoid retirement problems.
3. Tapping into your 401(k) or other retirement accounts early
Withdrawing too early from your retirement account is a surefire trick to outliving your money. This is because you will have less money for daily expenditures and lose the interest that the sum should have generated.
Additionally, if you withdraw from your 401(k) before you turn 59 and a half, you’ll be charged a 10% penalty fee and required to pay total income tax on the withdrawal – one of the enormous 401k mistakes to avoid!
You’ll eventually notice that your total money will be much less than what you wanted to withdraw.
4. Accruing debt
Stacking up debt is a no-no for an effective retirement plan. While you fervently avoid not saving for retirement, create and maintain a separate emergency account so you don’t have to borrow for unexpected events. The goal is to retire debt-free and stay that way even in retirement.
So, if you notice you are struggling with keeping your finances in order, start identifying the financial leaks and adjusting to keep the expenditures at a minimum and ensure you don’t have the worst retirement.
5. Making risky investments without diversifying.
Now, of course, risk tolerance is an essential factor in choosing assets. While younger people can afford to take significant risks because they have the time to make amends or ride out the temporary market downtimes in long-term retirement investing, older people do not have that luxury.
As one looking to retire, your topmost priority should be preserving your wealth. So, without regular paychecks after retirement, it will be a terrible idea to jump into any investments without researching or consulting a financial planner.
As you invest money for retirement, ensure that you diversify your portfolio to increase your compound interest and spread the risk across all assets.
6. Don’t neglect your estate planning
End-of-life planning, difficult and inevitable as it is, is often neglected by retirees. However, it is most prudent that you settle your affairs. This will ensure that your family will have fewer questions and more understanding upon your demise. You may have to speak with your legal and financial advisers to make essential decisions on tax planning for retirement and how to manage your retirement money and estate.
7. Don’t live a sedentary life
Without a routine and career-imposed purpose, it is common for retirees to feel worthless, lonely, or depressed. So, they often recoil into shells and hide behind screens — television or mobile devices — which is a retirement blunder to avoid.
Now, binge-watching shows on Netflix or scrolling through social media is not terrible. In fact, it’s an excellent way to unwind and relax, but not at the expense of other activities that keep you healthy and active.
Connect with people and stay active and busy with mental, social, and physical activities. In this balance, you will find the key to retirement success.
8. Don’t be afraid to try new things
Of course, retirement is uncharted terrain, so it will feel like a lot at first. But it is also exciting, exhilarating, and a chance to do something new. Shying away from the opportunity will be one of the biggest retirement mistakes.
You can start a new career or business, get a part-time job, return to school, take a course, or volunteer. Either way, you will meet new people, reduce restlessness, and probably find a new purpose post-retirement.
9. Don’t use up your savings
We know you want to try new things with all your free time but don’t spend all your savings on them. There are few things worse than being retired and broke. Make a budget and stick strictly to that budget.
Don’t go impulse shopping for a new car or expensive presents for your grandchildren. If you must spend so much, consider getting a part-time job to earn more money, cut daily expenses, and maximize senior discounts and coupons. Remember that the goal is never to outlive your money.
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10. Don’t neglect your health
For someone looking to be retired and catch a break, that will only be possible if you’re healthy. So, ensure that you are intentional about your health, feeding your mind and body with positive activities to keep them sharp and healthy Now, while there’s the luck factor, we can often influence and enhance our health differently.
Continue challenging your brain to keep it healthy, improve your memory, concentration, and problem-solving skills, and prevent the risk of Alzheimer’s. Do not neglect a good night’s sleep, so your body recovers and restores energy for the next day as a retiree.
Plus, it helps make your heart healthier, prevents diseases, reduces stress, improves your mental functions, reduces the chances of depression, and protects retirement savings since you would be visiting the doctors less.
The Final Take
Some retirement blunders can make your retirement plans short-lived, from spending savings, investing in risky assets, and withdrawing from 401(k) early. That’s why you need reliable financial planners to help you plan and make the right decisions.
We understand the retirement process at Interactive Wealth Advisors and are ready to walk it with you. Together, we will help you outline your expenses, plan your retirement goals, and build your portfolio to guarantee your dream retirement.
As an independent, fee-only financial planner in Portland, you can rest assured that we only give unbiased advice and recommendations that align with your values. We do not make any commission off product sales.
We can also serve as your fiduciary planner, prioritizing your interest and goals and ensuring tailored wealth management strategies for suitable investments during retirement.