5 Financial Loose Ends That Will Cripple You in Retirement
Written by
Lydia Kibet
Edited by
Zuri Anderson
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Retiring comfortably is more than just having enough money saved. You also need to make sure you’re not carrying financial loose ends into your golden years.
Even small oversights can snowball into costly problems when you’re no longer earning a regular paycheck. Here are the most common loose ends and how to fix them before they cost you in retirement, according to experts.
Carrying Debt Into Retirement
Retiring with high-interest debt like credit cards and personal loans can cripple you financially. Even a mortgage or car payment can create financial strain. When you’re living on a fixed income, every dollar that goes toward debt payment is a dollar you won’t get back.
“Retiring with debt is dangerous. As you shift to a fixed income, you need to be debt-free,” said Jay Zigmont, founder of Childfree Trust. “You won’t have overtime and bonuses to help you chip away at your debt in retirement.”
Ignoring Long-Term Care Planning
One of the biggest expenses retirees underestimate is long-term care. And it’s not optional. Nearly 70% of older adults, aged 65 and above, will need some form of long-term care, according to the U.S. Department of Health and Human Services.
“You need a plan for long-term care before you retire,” Zigmont warns. “Medicare does not cover long-term care, and it is the largest single expense you will have in retirement.”
Skipping Tax Planning
Your retirement income might come from 401(k) plans, Roth IRAs, brokerage accounts, pensions, or Social Security. Each has different tax rules. Without a plan, you could end up with an unnecessary tax burden.
“You need a tax plan before retiring,” insisted Zigmont. “Investing is relatively simple, but tax planning can be a challenge. You need to know which funds you are going to get access to, and when, in order to lower your total tax burden.”
Stashing Cash Under the Mattress
Keeping thousands of dollars at home might feel safe, but idle cash is losing value every single day.
“Inflation will erode the purchasing power of that cash over time,” said Tom Betros, wealth advisor at D’Arcangelo Financial Advisors. “Although it may be safe, it’s best to earn interest via a high-yield savings account or other interest-bearing vehicle.”
High-yield savings accounts currently pay 4% to 5% annually on idle cash. We could all use the free money.
Scattering Retirement Accounts Everywhere
Diversifying your retirement investments is smart, but multiple retirement accounts in your golden years can become a headache, especially when required minimum distributions (RMDs) begin.
“When it comes time to take RMDs, it may become a mental burden to keep track of if assets are in different places,” noted Betros. “RMDs are only calculated according to the assets a financial firm has under custody. If you forget about an account, you may miss an RMD payment. Penalties of 25% may be assessed for the amount of the missed withdrawal.”
More From GOBankingRates
