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Top Five Errors Retirees Make

In part two of my Top Five series (you can find part one here), we’re moving away from retirement planning and moving straight into retirement. While every client that walks through my door brings an entirely unique set of circumstances, I have to be honest - I see a lot of the same mistakes. Which has lead me to believe that somewhere out there, concepts exists that continue to reaffirm these ideas, making my job and your retirement more difficult. 

So, let’s dive in and identify these top five mistakes and how you can avoid them for a happy retirement. 

  1. You haven’t figured out your expenses. 

At first glance, people often assume their retirement expenses will be less than their working life expenses. Perhaps you’re giving up a long commute, meals out, and it’s time to retire that suit collection as well. 

However, while you’re moving away from your 9-5 lifestyle structure you’re opening up a lot of free time, which people often tend to fill with other expenses such as memberships (golf club), hobbies (photography), or the big one - travel. You may also be avoiding those corporate lunches, but find yourself spending more time at the coffee shop or going for dinner with your family. 

Other expenses we often see are those large ticket items. Perhaps you promised yourself a new car when you cashed in on your 401K, or a second home to vacation somewhere warm. You may have even pledged some money to help your grandchildren or children with the cost of education. All of these larger, one-time expenses tend to get forgotten when planning your retirement budget. 

It is not unlikely that retirement expenses may be higher in the first ten years. Historically we’ve seen your expenses go up in the first ten years, level off, then go up again in the last ten years to accommodate for medical expenses - another area people often forget about. 

To counter these expense problems I often advise my clients a year before retirement to start tracking their expenses. One method is to put your monthly income directly into a savings account, and auto transfer a set amount each month to your checking. 

If you find at the end of the month your bills aren’t all paid from that set amount, we know you need more income to maintain your lifestyle. As we keep track of this over 12 months, we will know what you’ve spent during that year. 

Once you’re retired, you can use those expense values to create your own retirement paycheck

It’s also important to be honest with your financial advisor about any big ticket expenses you see yourself needing in retirement - we’re here to help you live your act three to the fullest! 

  1. Investing too conservatively too early. 

When you’re working and bringing in those paychecks, it’s easy to ride out the stock market ups and downs. However, once you’re retired, people tend to become hyper aware to changes in their accounts making them protective of their assets. 

This tends to be the wrong thing to do. Think back to 2008... If you had just retired in 2007 and saw the markets bottom up like they did a year later, you’d be fighting the urge to get out fast. If you were able to control that urge, and hold onto your assets, today you’d likely be very grateful you did. Only twelve years post retirement you’ve likely got 10-20 years left to make use of that money. 

The other issue with pulling out is - where are you going to put that money now? Interest rates are rising but it’s nothing spectacular. So your money isn’t working for you sitting in a bank. If you’re concerned about high market prices (like we're seeing currently), if you pull your assets out you’re paying more to get back in - and that isn’t a strategy you’ve got a lot of time for in your retirement. 

While it’s definitely a different game in the stock market once you’re retired - you don’t have to completely give up on your assets. They’ve still got work left to do for you, so I say let them. 

  1. Not planning for income taxes

While tax planning is always important, it becomes even more so on a fixed income. Because the less you pay in taxes, the more you have for yourself. 

Often we use tax shelter investments such as IRAs and 401Ks to lessen our taxes as working individuals. However, once you’re retired you need to be hyper aware of the money in those accounts. 

If you retire at 65, and that income sits until you’re 70, you run the risk of those assets having grown and the taxes you’re paying at 70 are going to be much higher. We need to be constantly aware of the tax brackets you’re sitting in, and also make use of tax-loss and tax-gain harvesting in order to keep the taxes on your investments manageable. 

  1. Incorrect Social Security Decisions

It’s tempting when you retire to see your social security and say “hey, I’m ready for my free money,” but social security can be a complicated issue if you’re drawing early, continuing to work after retirement, and for taxation reasons. 

It’s important that you plan to withdraw on your social security in a time that benefits you and your family the best. If you’ve got two retirees, and double the access to Social Security it may be in your best interest to wait and take it when you’re 70 - it could mean more money for both of you over your lifetime. I’ve written a four part series on making the best Social Security decisions, and I recommend you head there for more information. 

Social Security Conundrum Pt 1

Social Security Conundrum Pt 2

Social Security Conundrum Pt 3

Social Security Conundrum Pt 4

  1. Incorrect or no legal documentation

Once you retire, it’s pertinent you get your legal documents in a row. This is a perfect opportunity to sit down and ensure everything is in proper order and going where it’s intended. 

Often times I’ve encountered clients who are ready to retire with no proper will or a will that is twenty years old and has never been reviewed. That type of will gets particularly tricky if you’ve had a second marriage since then (for more information on this, I’ve got a great blog detailing estate planning for second marriages). 

It’s also important for you and your family to have detailed who will have power of attorney and health care proxy. Things can become complicated very quickly if something happens to you medically and you don’t have these things sorted (you always want to ensure that in a state of medical emergency someone can pay your bills). 

You’ll also want to double and triple check your beneficiaries on all your assets, and that all your trusts are set up exactly how you intended. For more information on estate planning feel free to head over to my Estate Planning Essentials blog post. 

And there you have it! The top five mistakes I see regularly in retirement. If you’re concerned you’re making any of these, or want to ensure your future retirement is mistake-free, don’t hesitate to reach out.