The smartest and most successful people learn from their failures, turning them into experiences and insights for eventual success. When it comes to retirement, though, mistakes can be costly. And by the time one realises them, it is possibly too late to rectify them or learn from them for ‘eventual’ success.
The most common mistake people make before their retirement is spending extravagantly to acquire unnecessary possessions and/or on avoidable events. After retirement, their most common financial mistakes include withdrawing frequently and aggressively from their savings; not adhering to a budget and also not accounting for the tax.
Retirement is a stage in our lives when we stop earning a monthly income from our jobs or businesses, but still need to spend on maintaining our lifestyle and meet our ‘bucket list’ goals. It’s a tricky balance between spending enough to enjoy what we’ve earned while not depleting the savings in our lifetime.
From saving too little to spending too much, there are several ways retirees sabotage their golden years. How prepared are you for retirement? How much money does one need to retire? Do you know the ins and outs of your pension? Here are the top seven mistakes to avoid.
THE TOP SEVEN MISTAKES RETIREES MUST AVOID
1 Discounting the experts. The foremost mistake people make is taking advice only from friends and family on how to invest, and not seeking professional help. Most people aren’t capable of making their own financial decisions leave alone others’. If they don’t know everything about your financial situation and the available financial options and opportunities, a non-professional is bound to make the mistakes, and they could prove to be costly.
2 Failing to make a budget. A thorough budget that outlines one’s core expenses and the desired discretionary expenses is a must, but most people either ignore it completely or make it after it’s too late. It’s something that one must do while in their 30s, and keep tweaking it as you go along.
3 Others before self. Many retirees gift their children the down-payment for a home or their grandchildren’s college educations. They fail to realise that they cannot replace their money while their adult children can take on debt and repay it with their future earnings.
4 Rich house, poor owner. Don’t be over-invested in your house as most retirees are house-rich but cash-poor. What’s the point in your house being worth more than your retirement accounts? Yes, a lavish backyard and extended bedrooms will add value to the house, but you can’t easily unlock that value while you’re living in it. Proper medical insurance, occasional outings with your spouse and friends, and other such things will make your retirement more pleasant than redoing the kitchen or building a sunroom. Think before you sink your retirement fund into it.
5 Nothing will change. Will it? Not recognising how expenses change in retirement is a common mistake, too. A Fidelity study estimated average healthcare will cost $220,000 throughout the course of a person’s retirement, but most near-retirees estimate it to be $50,000. No rocket science there. Healthcare costs get higher as one ages. And inflation isn’t a retiree’s friend.
6 ROI-ling taxes. Worrying more about taxes than the return on investment is also common among retirees. It is good to get a realistic idea of one’s tax bracket and then talk to a tax/investment advisor who can help you invest and withdraw your money in a way that will provide the greatest return with the least tax liability.
7 Have money, won’t will. Another mistake is not writing a will and designating your beneficiaries on all your financial accounts and your power of attorney. Some people think they don’t need estate planning because they don’t have an ‘estate’. Nothing could be more wrong. If you have a savings account, a home and a family, you need to write a will. And keep it updated.
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