Once you’re retired, it’s easy to feel like most of your huge financial decisions are behind you. After all, to get to this point, you’ve likely made some financial sacrifices along the way in order to reach key goals like Financing your retirementOr buying a house or even getting the kids into college.
While it’s true that many of these expenses may have been among the largest of your life, retirement doesn’t mean the days of financial planning are over. With many Americans living 30 or more years after they stop working, it’s essential to continue making wise financial choices to ensure your money doesn’t run out.
Here are some of the Retirees always seem to regret money movesSo try to avoid it as you sail into the sunset.
Excessive spending on housing
Many retirees find themselves in a “too many home” situation, and this can often be a financial problem. For some retirees, the problem comes in the form of owning a large home that no longer fits their needs.
For example, if you are now single, or if you have children who have moved home, you may find yourself paying for a 2,500 square foot home when all you really need is a 700 square foot apartment. If you are still paying off a mortgage, this can be a huge and unnecessary hindrance to your cash flow.
Even if you own the entire home, your maintenance and heating or cooling bills may be much more than you need to pay. Consider downsizing to a more convenient and less expensive home if you’re looking to preserve your cash flow.
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Being so generous
Being generous is not wrong. In fact, many retirees look to be able to share their good fortune with family and friends in the form of buying gifts, helping fund college or even paying for weddings.
However, unless you’ve amassed a large nest egg that will cover over 30 years of expenses with plenty of room to spare, you may regret being so generous with your money, especially soon after retirement. Although you shouldn’t stop being completely generous, just make sure it all fits into your retirement budget.
Not enough budget for health care
Health care is often the biggest expense that retirees face. Although Medicare and private insurance may cover many of your costs, you will undoubtedly face health care expenses that you will have to pay out of your own pocket.
These costs may come in the form of overdrafts, deductions, or co-payments. You will also have to budget for long-term care, which is often not covered unless you have a specific policy. It’s a good idea to sit down with an insurance professional when you retire to make sure that all of your most expensive medical costs will be covered — and that you can set aside enough in your budget to cover any additional expenses.
Ignore the effects of inflation
Inflation is the invisible killer of many pension funds. While inflation has been relatively modest for years, it made a strong comeback in 2022, reaching 9% in June.
At these rates, the purchasing power of even a large nest egg is rapidly dwindling. If prices continue to rise at 9% per year, the average cost of everything you buy will double in about eight years. Since you are not likely to earn 9% or more on retirement savings safely and consistently, you will have to prepare for the fact that purchasing power diminishes over time.
In other words, it is not enough to retire with an amount that can cover your costs in current dollars. You will have to build up enough savings to cover the increased prices caused by inflation.
Invest very conservatively
These days, it is not unusual for someone to retire and then live an additional 30 years or more. This is why it is still important to keep some growth investments in your retirement portfolio. Sure, you don’t want to risk your entire egg by putting it into speculative investments. But stock allocation is still an important part of retirement planning.
In the past, advisors would recommend retirees immediately take all risk out of their portfolio, as they could not risk bearing a decline in their portfolio. If you’re going to live another 20 or 30 years, you still have plenty of time to recover from the usual market corrections and still maintain enough growth in your portfolio to help counter the effects of inflation.
to be very confident
Old people are prime targets for scammers who are looking for easy profit. For starters, many seniors have amassed life savings and thus have money to take. Secondly, many retirees are too trusting, which leads to falling for scams.
Criminals only know how to appeal to retirees’ feelings and try to lure them with promises of good travel deals, money transfer bonuses, or other frauds that may appeal to their good nature and eagerness to help others. Without a regular job to keep rolling back your retirement money, it’s important to protect yourself from fraudsters looking to empty you of your hard-earned cash.
Claim Social Security Too Early
Eligible retirees can claim Social Security from the age of 62, but this isn’t always the wisest strategy. Benefits are permanently reduced by about 30% for those who apply before reaching full retirement age, which is 67 for those born in 1960 or later.
However, about a third of retirees apply for benefits at age 62. In some cases, this money is absolutely necessary for a living, but for many others, the idea of delaying payments is hard to resist. If you expect to live a long life in retirement, it is much better to wait to claim benefits until full retirement age or until age 70, which is the last you can file.
Take on additional debt
While inflation can wipe out your purchasing power at retirement, debt attacks your actual cash flow. If you accumulate debt in retirement, not only will you have to shift some of your money to pay it off, you’ll also likely face double-digit interest rates on your balances.
At an interest rate of 18% – which could already be low if the Fed keeps raising interest rates – the interest accrued on your debt could double in less than four years. With this kind of financial burden on your back, it will be difficult to make ends meet. While everyone should try to avoid getting into debt, it is especially important for retirees, who are no longer receiving regular salaries.
Refuse to catch a side party
Many retirees stubbornly cling to the idea that “retirement” means never working again. While that’s a sweet dream, retirement expenses – and rising inflation – often require seniors to find additional sources of income.
Working a few hours a week at the side party can have many benefits, both financial and otherwise. For starters, a few hundred or even thousands of dollars per month can make all the difference when it comes to covering all of your expenses in retirement. Plus, working part-time can have many side benefits, from making new friends, learning new skills, keeping your mind sharp, and finding new things you enjoy.
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