Yahoo Finance 7 Things You Should Never Do in Retirement
Retirement: A magical time of life when you no longer (necessarily) have to work for your money. Instead, decades of hard work coupled with saving and smart investments should mean that your money now works for you.
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Careful financial planning can certainly lead you to this outcome. However, there are several things you’ll want to street clear of to ensure that you don’t end up in financial trouble after you call it quits at work.
Here are seven things you’ll want to seriously avoid if you’re approaching retirement or you’re already retired, according to Ameriprise and Think Bank.
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1. Retiring Too Early
Deciding to stop work too early can have long-term implications on how long your money will last you. If it’s clear that you don’t have enough money saved, consider working for a few more years to augment your retirement savings. As a general rule of thumb, it’s important to save at least 15% of your annual income toward retirement throughout your working life — or more, if you can.
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2. Overspending
Many people find themselves on a reduced or fixed income in retirement. So, it’s really important to make sure you’re not overspending. Creating a clear budget can help you track where your money is being spent each month, ensure you’re not living above your means, and help you stay out of debt.
3. Taking Social Security Too Early
It’s possible to collect Social Security as early as age 62. However, you’ll only be eligible for a portion of your maximum monthly benefit by doing so. The longer you wait to collect Social Security, the larger your monthly payment will be for life. So, waiting longer can have huge long-term impacts on your cash flow and financial stability.
4. Underestimating Effects of Inflation
You won’t be immune to the effects of inflation just because you’re retired. It’s crucial to consider how even low levels of inflation ranging from 1-2% can erode your purchasing power. It’s best to consult a financial advisor to devise an investment strategy that mitigates the effects of inflation once you’ve stopped working.
5. Underestimating Medical Expenses
In many cases, getting older likely means increased medical expenses. Even though you’ll be eligible for Medicare, it doesn’t cover everything like long-term nursing-home care, dental and vision, as well as medical deductibles and copayments. You could need extra funds to afford your medical costs without going into debt.
6. Only Making Conservative Investments
As you approach retirement, it’s smart to stick with more conservative investments — like parking your money in a high-yield savings account or opening a certificate of deposit (CD). However, the returns on conservative investments don’t always outpace the effects of inflation. With the average life expectancy increasing, be sure you have some more aggressive investments mixed in, as these can provide additional funds in retirement.
7. Not Having a Plan
It goes without saying that planning is key. A safe and financially sound retirement must be carefully planned to be sure that you don’t outlive your money. The earlier you start planning and investing, the more money you should have at your disposal down the line.
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