Financial mistakes are the two words most retirees dread when it comes to their funds. Much like how they want to keep their health in tip-top shape, the same goes for their retirement nest egg. The two are quite similar with approach, process and end result. It is important that retirees understand the repercussions of making money mistakes early on in retirement.
To put things in context, it is a good idea to understand the average retirement age for US consumers. According to Gallup.com, 62 years of age is the average actual retirement age for Americans but non-retirees expect to retire at 66 years of age. This is quite a good sign as the reality of retirement comes earlier than what they expect.
Though the numbers vary, one thing is for certain – retirement is inevitable. It can come from a well-planned decision with a retirement fund to speak of. It can even be forced on to people for a number of reasons. There are also instances where retirement comes because of disability or simply the inability to continue working anymore because of old age.
With that in mind, it is for your own benefit to start planning for your retirement years as early as possible. This gives you two things – the chance to retire at an age you want and having the funds to back up that decision. However, when retirement comes along, you still need to be on guard and ensure your nest egg is not compromised by wrong decisions.
This is one of the retirement essentials which you have to consider if you want to enjoy your golden years. Here are some of the most common financial mistakes early retirees make so you can be well informed.
Lifestyle change in a hurry is one of those financial mistakes
Speed and retirement are two things that usually do not go hand in hand especially when it comes to financial decisions. Being meticulous and informed is way better than speed and haste. This is because prior to and immediately after retirement, you might have plans that you can’t wait to get started with. But you should take the time to think things through.
Cantonrep.com shares that there are retirees who want to have a tiny home and travel with a car and trailer. There is nothing wrong with this but it has to be something that was planned way before retirement. This means saving up for it years before they need it. Doing it on impulse might not deplete your retirement account but it can lower down your nest egg.
Knowing this, you need to think financial decisions through when you are in retirement. You might be overwhelmed with the amount you were able to save and believe a small pinch would not hurt. The trouble with this attitude and approach is that you rarely stop with just one pinch. Sooner or later, you might be looking at a depleted retirement fund not knowing what you spent on.
Thinking financial emergencies are behind you
One of the financial mistakes early retirees make is believing that the worst is behind them and it is smooth sailing from thereon end. With this mindset, you might start to lose your focus on your reserve funds. You might simply stop saving up for it or worse, use what you have in that fund for non-emergency situations.
What you need to understand is that those emergency situations you were preparing for when you still had a job might already be behind you. However, in retirement, these emergency situations might just come in a different form. You would not fret over losing your job in retirement because you are already retired but what if your car breaks down or you find yourself in need of a major house repair issue? Emergency situations will never go away because they just change over time depending on your status in life. Be sure to keep a close eye on your reserve funds even in retirement because it would now be a lot harder to save up for it.
Lending money to family and friends
This is one of the more trickier situations to be in when you hit retirement because of people trying to borrow money from you. More often, these would be family and friends who think that you would not have much use for the money because you are already retired. However, this cannot be further from the truth. Now that you are retired, you would need that money more than ever to cover your financial needs.
There will be times when your own children or grandchildren would borrow money from you for personal needs. You might feel guilty if you say no and simply hand them over a part of your retirement fund. It can be in the form of co-signing a loan, using your credit card or simply asking for cash. You need to weigh this decision carefully because now that you are retired, earning that money back is a challenge without a steady stream of income.
Forgetting to communicate with your spouse
This is important for married couples where one, or even both are heading into retirement. This becomes one of those financial mistakes you might encounter because you did not talk about money matters with your partner. You might have different views on how to approach retirement and this can cause friction in your relationship
You might be saving to travel while your spouse wanted to save to start a small business. The idea is to talk and discuss what your plans are so you can find a common ground. It is possible that as you travel, you can also start an online business you can manage anywhere in the world. This lowers down your capital expense and allows you to see the world as well.
Using Social Security benefits early
One of the pillars of your retirement fund would be your social security benefits. You would be cashing in on this to form part of your nest egg. However, it might be helpful to know that taking out benefits at a later date can help increase the amount. Eligibility can start as early as 62 years old but wait to use it around 65 to 67 years of age can increase your retirement benefit. This is something you need to factor in when preparing for retirement.
Unhealthy risk balance with investments
There are a lot of investment tips you might receive with regards to retirement. One is to taper of risky funds as you get older. This is actually a sound piece of financial advice. This is because the riskier it is, the harder it would be to bounce back in retirement if things go south. CNBC.com even reiterates this point that retirees need to keep an eye out for risk in their investment portfolio. The problem starts when you take this too literally and pull every single risky investment you have.
Remember that one of the key ingredients of a successful investment strategy is balance. You need a healthy dose of various investment products in your portfolio. This helps ensure that you are flexible enough to adjust as well as take advantage of trends. Taking all risky investments such as stocks could rob you of potential earnings down the line.
There are a lot of financial mistakes you’ll make over the course of your life. The idea is to learn from them early on. This helps you minimize mistakes as you get older and enter retirement.