7 Money Mistakes You Absolutely Shouldn’t Make in Your First Year of Retirement
Written by
Jennifer Taylor
Edited by
Amber Barkley
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You’re finally ready to enjoy your golden years. After working hard for decades, you recently retired, and you’re trying to navigate your next chapter. Money is, of course, a huge part of that, as you’re getting adjusted to living on a fixed income. You’re also trying to make sure your investments are in the right place, to maximize your savings.
This is a lot all at once, but you don’t have to figure it out on your own. Here are seven tips from financial planners to help you avoid making costly money mistakes.
Relocating to a New Area
Now that you’re no longer tied to a desk, you might be tempted to pack up and move to your favorite vacation destination, but Carl Holubowich, CFP, principal at Armstrong, Fleming & Moore, Inc., advised against this.
“You may be leaving behind family and friends, it may be difficult finding new healthcare providers, plus the costs of moving can add up,” he said. “It’s a lot different to visit somewhere for one-to-two weeks versus living there year round.”
If you do plan to relocate during your golden years, he recommended visiting for an extended period during different months of the year.
“While Florida’s weather might be appealing during the winter months, not everyone can tolerate its blistering summer weather,” he said.
Shifting Your Entire Portfolio to Cash and Safe Investments
“It is a real mistake to become extremely conservative upon retirement,” Holubowich said. “That advice worked when clients died within several years of being retired.” Now that people live so much longer into retirement, he said you’ll risk running out of money if you don’t have a portfolio that will support you for several decades.
“If a couple lives to 65, there’s a good chance that one of them will live into their 90s,” he said.
Claiming Social Security Immediately
You’re retired, but that doesn’t automatically mean you need to start collecting Social Security, Holubowich said.
“It is a more complex decision than most people realize, and choosing the optimal strategy for your situation can result in a significant increase in benefits over your lifetime,” he said. “Some retirees may find it beneficial to delay collecting Social Security, which can be delayed as late as age 70 to receive the maximum benefit.”
Not Having a Plan
“The biggest mistake you can make going into retirement is going into retirement without a plan in place,” Holubowich said. “If you don’t know what your income and expenses are going to be in retirement, you could be vulnerable to some unpleasant surprises down the line.”
He said this can cause you to seriously limit your cash flow. “It can lead to overspending as you rush to do all of the things on your bucket list, only to have to severely curtail your lifestyle later on in retirement,” he said.
Steve Sexton, CEO of Sexton Advisory Group, agreed that not having financial plan in place is the biggest mistake you can make going into retirement.
“Failure to plan is one of the most common reasons why retirees run into financial difficulties in retirement,” he said. “Putting a financial plan in place for your retirement at least five years before retirement is critical.”
However, he said the earlier you put a retirement plan in place, the better.
Overspending
During the first year of retirement, Sexton said, people often try to enjoy extra vacations, home remodels and all the other things they have been deferring, which can impact their financial security.
“The key here is to make sure you have an expense budget in place that fits with your financials,” he said.
Taking on Too Much Risk
Investing too conservatively is unwise, but so is being too risky with your investments.
For example, Sexton said if you had $1 million invested in the S&P 500 in 2000 and withdrew $40,000 per year, you would have $345,652 by the end of 2019.
“If you focus only on growth, when your share values are down, you have to sell more shares to satisfy your [withdrawals] and end up cannibalizing your principle,” he said. “The key here is to make sure a portion of your investments are generating income to support your lifestyle in retirement.”
Paying Too Many Fees
“Fees impact every age, but as you get older, your balance will start getting larger and those fees will really add up,” said Kendall Meade, CFP, a financial planner at SoFi.
She said fees are confusing and the average investor doesn’t always understand what they’re paying.
“A fee of 1% or 2% may seem like a small number, but that is $5,000 to $10,000 a year if you have $500,000 saved up,” she said. “Rather than paying high fees for your investments, consider using a lower cost alternative — this could be either an active investing product that allows you to buy and sell investments on your own or an automated investing product that invests your money for you.”
If this all seems a bit too overwhelming, consider meeting with a financial planner. They can help you review your accounts and create a plan to ensure you’re able to enjoy the financial security you’ve worked so hard to gain.
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