Everyone who’s just retired or is approaching retirement has. You’ve worked really hard to put yourself into a position to retire, and if you have a good plan, you should have plenty of room to make a few mistakes along the way.
But how do you know if you’re making one of the BIG mistakes that could cause your plan to implode?
In this video, I’ll show you the top mistakes that I’ve seen retirees make over the years AND I’ll show you ways that you can avoid them.
So, let’s get started with one that I see somewhat frequently.
Being Too Conservative with Your Investments
Based on Social Security’s life expectancy tables, someone who retires at age 62 is likely to live another 20 years. From an investing perspective, that’s a long time horizon!
And of course, there ARE some risks involved with getting caught in a market downturn right after you retire which could affect how much you can withdraw from your savings. (This is known as sequence risk, by the way.)
But in order to avoid this, you CAN take it too far and be too conservative with your investments. Even assuming reasonable inflation rates over the course of your retirement, there’s a chance that overly conservative investments won’t be able to keep pace with prices that rise over time.
So, how do you avoid this? Keep in mind that every good retirement investment plan balances the risk of going through a downturn today with the risk of inflation eroding your ability to pay your bills later in life.
There’s no one-size-fits-all answer here, so it all depends on your spending relative to your savings. But many retirees could see better outcomes if they aren’t OVERLY conservative with their investments.
But once you’re invested for the long term, you’ll have to figure out how to avoid our next retirement mistake.
Not Knowing How You’ll Spend Your Time
Believe it or not, when it comes to retirement, it can be easier for many people to plan for the numbers than it is to envision what life will be like.
Not having this figured out could cause you to overspend in those early years of retirement. It could also put you in a position where you’re glued to the TV, doomscrolling, and, before you know it, you’re making some significant changes to your investment strategy.
So, how do you avoid this? Try your best to envision how you want your average weeks to look like in retirement. Plan for some sort of hobby or activity to engage your interests and give you some energy. You may even want to take a couple of weeks off before you retire to… practice being retired. Just so you know what it feels like.
And of course, practice a little mindfulness when it comes to TV and social media.
But once you’ve settled into a good routine in retirement, now you’ve gotta worry about our next big retirement mistake.
Not Having a Way to Track Spending
As Eisenhower said, “Plans are worthless, but planning is everything.” Or in Mike Tyson’s words, “Everyone has a plan until they get punched in the face.”
So, while you’ve probably put a ton of thought into your retirement budget and withdrawal rates, you MAY want to actually track this stuff to confirm you’re hitting your numbers.
Of course, you can log into your bank and credit card accounts, download all your transactions, and start classifying everything in a spreadsheet.
Or you could do it the easy way.
I encourage my clients to open a high-yield savings account before retirement for a couple of reasons. First, they’ll get a higher interest rate for their emergency cash than in their checking accounts.
But the other reason is just as important. If you use your high-yield savings account as the conduit between your investment portfolio and your everyday checking account, you can easily track how much you’ve withdrawn from your investments every year.
This way, you can use your year-end statement to see the exact number of your withdrawals. That, along with any changes in your savings and checking account, will tell you exactly how much you spent.
You don’t have to be perfect, but knowing that your withdrawal numbers are somewhat close to what you’ve planned will give you a TON of confidence in retirement.
Now that you have the blocking-and-tackling of your portfolio withdrawals squared away, you’ll want to focus on our next retirement mistake that I’ve seen all too often.
Not Having an Estate Plan
I know you’ve heard the horror stories about people passing away without a will, or someone in the hospital who needs a life-saving decision, but doesn’t have an advance directive for medical care.
Look, it’s not fun thinking about our own mortality, right? But so often, we’ll keep procrastinating on getting estate planning documents set up.
I’ve harped on this one in past videos, so I’ll keep it short. But not having estate planning docs set up invites infighting between your family, not to mention costly legal fees.
And who knows – your retirement accounts may still be going to your ex – and nobody wants that!
Getting your estate plan together is a gift you give your family, so save them a bunch of heartaches and headaches if you haven’t already.
Relocating Without a Plan
Downsizing is often a plan for many in retirement, but sometimes a poorly thought-out move can end up costing you more. With rising home prices and higher interest rates, downsizing isn’t the slam-dunk it once was.
And of course, there are hidden costs of moving expenses, real estate fees, travel to return and visit family, and the potential for new lifestyle creep. But, if things don’t end up working out, you may end up spending all of this TWICE when you eventually move back.
So, how do you avoid this? It’s not just about running the numbers. If you’re interested in moving to a new place, why not try it out for a month or two? Rent an AirBNB and see if you enjoy it. After a couple of weeks, you’ll have a better idea if this is something that’s more of a fit than a pattern-interrupt that comes with being somewhere (anywhere) new.
And that way, you’re not trying to undo a house purchase!
Unfortunately, no matter where you are, our next retirement mistake can snare even the most diligent of us.
Getting Scammed
It’s not fair, but the truth is that scammers target retirees. Why? Well, the older you are, the more likely you are to have significant savings. So, we all have to be on our guards for scammers who want to exploit us.
It doesn’t matter if it’s the fake IRS calls, the “grandkid” that’s in trouble and needs you to wire bail money, or the sophisticated account hacking schemes, they can all sting no matter what form they come in. And unlike market losses, there’s rarely a recovery.
And it doesn’t matter how smart or diligent you are – all they have to do is catch you at the wrong moment. So, if this ever happens to you, don’t be embarrassed.
So, how do you avoid this? Well, there aren’t a lot of easy solutions, unfortunately. I would start by adding two-factor authentication to all of your financial accounts. And never click on anything in an email or text unless you’ve absolutely confirmed that it’s real.
This is a topic that maybe deserves a video of its own. But our next retirement mistake is one you can avoid.
Ignoring Long-Term Care Costs
According to a study from the Department of Health and Human Services, 56% of people who turned 65 between 2021 and 2025 will need some form of long-term care. That could come in the form of in-home care, assisted living, or nursing home care.
Great stuff to think about for golden years, right?
But burying our heads in the sand won’t help, either. Right now, the average annual costs in the U.S are:
- $70,500 for in-home care,
- $70,800 for assisted living, and
- $127,750 for nursing home care!
And these are costs that may not qualify for Medicare.
Do you have to buy long-term care insurance, then? Not necessarily, although that’s one (very expensive) option.
Planning for long-term care costs could also mean accounting for these expenses to come from your investments, using your home equity or a reverse mortgage, or buying a hybrid insurance policy with a long-term care rider.
Keep in mind that, of the 56% of those who will need long-term care, the average duration of these stays end up being 2 to 3 years.
So, while there’s not much use planning these expenses to the penny, as long as you have some sort of placeholder in your financial plan for them, that’s a great start.
Those are a few big mistakes that retirees make, but we need to dive deeper into the top three… because these mistakes can cause retirees to go BROKE.
Which is not ideal.
Click here to learn about the top three mistakes that I’ve seen retirees make over the years – and how you can avoid them.
See you there.
If you’re relying on one of these in your retirement and would like a second opinion, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.
As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.
