Yahoo Finance 6 Money Mistakes Retirees Make That Force Them To Change Their Lifestyles
If you’ve spent years saving for retirement, you probably have no plans to go through all your savings. But unfortunately, if you’re not careful, it can happen.
Find Out: Retirement Planning: How Much the Average Person Under 70 Spends Monthly
Learn More: The Surprising Way You Can Get Guaranteed Retirement Income for Life
To make sure you spend your retirement years financially stable and comfortable, watch out for common mistakes that have derailed even wealthy retirees.
Wealthy people know the best money secrets. Learn how to copy them.
Taking Excessive Risk
There’s a time and a place for taking financial risks — and it isn’t retirement.
Wealth advisor Sharon Hayut, senior managing director at Magnus Financial Group, has seen this play out among her clients.
“As an advisor, I often see individuals taking on excessive risk entering retirement, which leaves them vulnerable to market corrections.”
There’s a term for this risk: sequence of returns risk. Your long-term average returns on your investments matter, but it also matters when you earn high returns versus losses. A market crash early in your retirement can wipe out so much of your portfolio that it never recovers.
That same market crash a decade later might leave your portfolio chugging upward long term — because it had a chance to grow before the next bear market.
Read Next: Retirement Savings: 4 Expenses Retirees Regret Keeping in Their Budgets, According to Experts
Lacking an Emergency Fund
Hayut added that emergency funds aren’t just for those who are still working.
“Another common mistake is not having an emergency fund with at least six months’ worth of expenses to cover unexpected costs, whether for healthcare or something as simple as needing a new car. When these mistakes occur, they can significantly impact one’s financial stability and peace of mind.”
Without a cash emergency fund, many retirees have to sell off investments even if they take a loss during a down market. Avoid forced selloffs in retirement as much as possible.
Paying High Taxes
Retired or not, you’ll still have to pay taxes. But with careful planning, you might be able to reduce just how much you pay.
“Underutilizing tax-advantaged accounts is a common mistake,” said Mike Falahee of Marygrove.com. “Roth contributions are taxed upfront but compound tax-free, and you pay no taxes on withdrawals in retirement.”
When the government takes less of your income in retirement, you don’t need as much gross income to survive. That, in turn, means you don’t need as much saved up in your nest egg.
Not Adapting to Change
When your circumstances change, your spending should also change.
“Retirees often fail to adjust their financial plans in response to changing circumstances,” Hayut said. “Life events such as the death of a spouse, unexpected medical expenses, or economic downturns can significantly impact your financial situation. Regularly reviewing and adjusting your retirement plan can help you stay on track and make necessary changes to avoid financial hardship.”
Paying High Withdrawal Rates
Hayut said, “Avoiding money mistakes requires careful planning, disciplined spending, and regular review of your finances. It is important to work with a proactive advisor, that can help retirees ensure that their savings last throughout their retirement.”
This was true for Cem Oezulus, who immigrated to the U.S. and co-founded a small business called The Brot Box. He retired comfortably but has had to adjust on the fly since then.
“Retiring with wealth, I didn’t expect overspending and high withdrawal rates to drain my savings so quickly,” Oezulus said. “Poor investment choices and lack of diversification added to the financial strain. These mistakes forced me to drastically alter my lifestyle and adopt a more cautious financial approach.”
Ignoring Available Benefits
Most people don’t realize just how many benefits they qualify for or how many programs are available to them.
Attorney Marty Burbank with OC Elder Law sees this all the time among his retired clients.
“Many of my clients, especially military veterans, were not fully aware of the benefits available to them through programs like Aid and Attendance. I once worked with a veteran who missed out on thousands of dollars in benefits simply because he didn’t know how to apply.”
Burbank added, “Leveraging all potential sources of income and support can make a significant difference in retirement security.”
Whether you retire with $300,000, $3 million or $30 million, you can lose it all if you’re not careful.
Avoid overspending, have an emergency fund and, if possible, meet with a financial planner or advisor. You don’t have to hand them all your money to manage for you; you can simply pay a flat or hourly fee for expert advice.
It could make the difference between a comfortable retirement and one spent pinching pennies.
More From GOBankingRates
These 10 Used Cars Will Last Longer Than an Average New Vehicle
6 Things to Try This Week if You're Behind on Your Savings Goals
4 Reasons Retired Women Need More Money Than Men -- And What To Do About it
This article originally appeared on GOBankingRates.com: 6 Money Mistakes Retirees Make That Force Them To Change Their Lifestyles
