“What are the biggest retirement mistakes you see people make?”
A client asked me the above question a few weeks ago. It was a great question and forced me to take a minute to give him a well thought out answer. After a moment I said, “Mr. Client here are the ten biggest retirement mistakes I see individuals make.”
So, Mr. Client, this blog is dedicated to you. Thanks for such a thoughtful question.
Mistake 1- Not having a plan.
We’ve all heard the saying a million times: Those who fail to plan, plan to fail. This holds true especially when it comes to retirement. It isn’t a decision to make frivolously. You shouldn’t wake up one day and decide “That’s it! I’m done.” It takes careful consideration, soul searching, and planning. Retirement requires meeting with your team of professionals to discuss implications and strategy.
Mistake 2- Understanding how retirement changes your marriage.
Talk to your significant other about this milestone and get on the same page. Retirement can be both exciting and stressful on a marriage. When was the last time you spent all day, every day with your spouse for months at a time? If one spouse wasn’t working, I’m sure they had a daily routine. All of a sudden, you could possibly (and unintentionally) disrupt that routine. This is something that should be handled carefully. Sit down and discuss your retirement goals, aspirations, and lifestyle. Trust me, you’ll be thankful you did. Oh and don’t think my wife isn’t petrified of the day I retire!
Mistake 3- Not understanding your budget.
Some of us know exactly what “being you” costs. In my experience, however, the majority of us have no real clue. Almost every financial plan I end up building ends up with a large hole of unaccounted-for expenses. As this is a common “issue,” think about the impact retirement can have on your budget. No longer will you have that steady income or bonus. You are now relying on pensions, Social Securities, or other additional assets. How can one craft a recommendation to answer the question of if you’ll have enough money in retirement without first understanding what this money must cover? Its two completely different recommendations if you tell me you need $50,000 a year or $150,000 a year to live. Hone in on your monthly costs, the special big trips or expenses you anticipate, and any large home repairs needed. Often, these are missed in the beginning of planning.
Mistake 4- Spending too much in retirement.
A lot of retirees hit the ground running and start spending lots of money. I am an advocate of carpe diem; however, you also want to be careful not to overspend. Remember, this money has to last the rest of your, and your spouse’s, life (often 25 to 30 more years). If you aren’t cognizant of this, you could put yourself in danger of running out of money.
Mistake 5- Spending too little in retirement.
How can I talk about spending too little in retirement when I just mentioned spending too much? Despite the confusion, I enjoy seeing people enjoying the fruits of their labor. Go on that vacation, rent a house each year for your family to come visit, or get that boat. My point is that I’ve seen too many people go the opposite direction and be too afraid to spend their money for fear of running out. My suggestion is to work with a good financial planner. They can help you understand what you can and can’t afford. That way you can have peace of mind that you’re living responsibly.
Mistake 6- Wrong investment allocation.
All too often I see retirees default to a highly conservative investment portfolio and their reasoning isn’t sound. They’ve always been told to get more conservative as retirement approaches. But, what these people fail to recognize is that they still need growth in their assets. There’s a lot of finesse that goes into making sure your investments keep growing above inflation. In most cases, this is needed for your full multi-decade retirement. Remember, your time horizon isn’t retirement; it’s your life expectancy (or longer). Why miss out on that growth potential and the ability to live off those growing dollars?
Mistake 7- Taking Social Security too early.
This line of thinking is in the same world as investment allocations. The majority of people take their Social Security at age 62. They worked hard for these dollars and it’s time to get their fair share right? While that may be true, remember that every year you delay, your benefit increases a whopping 8%. This continues all the way until age 70. That is a pretty nice payday for those who are able to wait. Life expectancy keeps rising along with medical advancements, too. Additionally, if your payment is higher than your spouse’s benefit, and you predecease him/her, they’ll have the ability of taking your higher payment. So I ask, why cut yourself short when delayed satisfaction can likely lead to more dollars for you in the long run?
Mistake 8- Underestimating medical costs.
Most of us get medical insurance through our employer. So, many of us don’t have to pay for a good portion of medical expenses that we would have to otherwise. The average 65 year old couple should have saved approximately $285,000 for retirement medical expenses. That number is staggering and will only trend up. Think about it in these terms, you have a million dollars saved for retirement you can scrape off 28.5% of it for medical expenses. Now, how comfortable are you with $715,000 for everything else?
Mistake 9- Retirement “Buying” versus “Renting.”
I often see people so eager to live out their retirement dreams that they make poor financial decisions. Many times this is in the form of “buying” something they could have “rented.” For instance, let’s chat about that boat I mentioned earlier. I’ve seen people buy that boat and use it sparingly. Instead, they could rent a boat the three times a year they want to use it. That saves on the cost of any maintenance issues associated with ownership. The same thing holds true for retirement homes, too. Ask yourself if you can accomplish what you want by renting. You may be very surprised.
Mistake 10- Not sending this article to your friends approaching, or already in, retirement.
Need I say more?
We have an entire section of our website dedicated to the unique needs of the retiree. If nothing else, share this article with a friend who you think could benefit. Someone who could use insight to these common pitfalls of retirees. Remember, I’ve witnessed countless individuals retire. It can be both a great and stressful time of your life.
Thanks again, Mr. Client, for giving me the inspiration to write this article.
In his role as Financial Planner, Andrew forges lifelong relationships with clients. He coaches them through all stages of life and guides them to better achieve their life goals. For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.
Financial planning and Investment advisory services offered through Diversified, LLC, a registered investment advisor. Securities offered through Securities Service Network, LLC, Member FINRA, SIPC . Associates of Diversified, LLC are registered representatives of Securities Service Network, LLC, a registered broker/dealer, 9729 Cogdill Road, Knoxville, TN 37932. (800) 264-5499.