15 Financial Mistakes Retirees Can’t Afford to Make

Are you ready to retire? Then, you need to be planning, saving, and monitoring your finances wisely. Many people underestimate the importance of money management throughout retirement. They forget that a fixed income won’t vary and there is a cap on what you can and cannot spend. Just looking at these 15 financial mistakes that many retirees make is enough to prove how careful you need to be! Don’t make these retirement financial errors, and be smart about your money. Learning what to avoid is a great place to start!

Note: The content of this article is for informational purposes only and is not a substitute for professional advice. Always consult with a qualified professional for advice tailored to your individual circumstances.

Underestimating Healthcare Costs

Healthcare can be costly, especially if your health insurance ends when your employment stops. Many people fail to grasp how expensive it can be to go to the doctor, get necessary surgery, or pay for monthly medications. Before you retire, you need to have a plan in place for covering these medical costs, both expected and unexpected. Keep in mind that it will likely cost more than you think so try to over-budget! 

Retiring with Debt

When you go into retirement with existing debt, it can lead to trouble. Paying off your debt while in retirement will significantly strain your fixed income. Rather than using your money to pay for your daily expenses and enjoy your retirement, you will be making debt payments, chipping away at your savings faster than necessary. The interest payments on your debt will also be wasted as you give away cash that could have been used for travel, hobbies, or medical expenses. Try to pay off your debt before retirement, when you still have a steady income stream to rely on. 

Overspending Early

Your bank account will look nice when you first retire! It can be tempting to start spending all that cash and enjoying your non-working life. But it would be best if you remembered that the money in your bank account must last years and years. Overspending early in your retirement is a big mistake, leading to stress later on. 

Relying on Social Security

Social security is fantastic for those who are retired. It is nice to have a small source of income that continues into your retirement. However, you should never depend on that income as it is not guaranteed. Not only is social security projected to run out in the coming years, but these benefits often don’t cover all your living expenses, especially with the rising costs of healthcare and housing. Try to consider social security checks as bonuses or extra cash. 

Budgeting for Taxes

Just because you stop working and no longer have a steady income doesn’t mean paying taxes stops. You will still need to pay taxes on any social security income, pension money, and any withdrawals from savings accounts. Property taxes and sales taxes also never go away! Make sure you plan for these expenses for the entirety of your retirement. 

Making Risky Investments

When you still had a steady income and a secure job, it may have been okay to make risky financial investments. If the investment failed, you would still have a reliable paycheck. But, once you retire, those paychecks stop, and making risky investments can jeopardize your hard-earned savings. You don’t want to lose your money when you need it the most. 

Failing to Update Your Budget

Your budget will look very different once you retire. You need to reassess your spending and balance it with the fixed amount in your savings account. You may not be able to spend as freely as you once did if you want your savings to last. Not only is it necessary to alter your budget immediately after you retire, but you should also continue to tweak it as the years go on, making any adjustments needed based on your new retirement experience. 

Not Updating Estate Plans 

Once you retire, your assets may change, and your relationships with others may also shift. Updating your will is essential, especially as you get close to a time when this important document may be needed. Take a look at your will and make any necessary adjustments to the beneficiaries or inheritances. Keeping your estate plan current can also help minimize potential legal challenges and reduce the possible tax burden on your loved ones after you pass. 

Falling For Financial Scams

Unfortunately, many retirees fall victim to financial scams. The older, kinder generations are more likely to become a target for scammers looking to steal cash. Scammers know how to exploit the trust and fears of retirees, getting them to hand over valuable account information with too much ease. Always stay informed and verify any unsolicited offers by consulting with trusted financial advisors before making any decisions. 

Withdrawing From Retirement Accounts Early

You finally retired, and those retirement savings accounts are finally available. You have saved for years to get to this point! But do not withdraw that money sooner than needed. Many retirees get overly excited about having access to their retirement accounts and start withdrawing and spending way too early. Taking out too much will quickly deplete your savings and leave you with less to live on in the long run. Early withdrawals also may lead to penalties or high taxes, which can also reduce the amount you have for the future. 

Ignoring Spousal Benefits

Spousal benefits can be a crucial portion of your retirement income and something all couples should consider. Spousal retirement benefits are Social Security benefits that let spouses claim a portion of their partner’s earnings record. Typically, a spouse can receive up to 50% of the partner’s Social Security benefit if they wait until reaching retirement age. This can seriously help boost household income and make retirement a lot more comfortable! 

Not Accounting For Inflation

When planning and budgeting for retirement, it is essential that you remember to account for inflation. Prices will continue to go up throughout your retirement but the amount of cash in your savings account will likely stay the same and slowly go down. You need to account for inflation in your budget to make sure you have enough money saved for all of your basic needs. Use inflation rate projections and inflation history to predict how much more you will need year after year. 

Not Relocating

While this is not necessarily for everyone, some people may want to consider relocation. For instance, now that your children live in their home, you may consider moving to a smaller house. And what about changing country? If none of the people you love the most still live in your city, you could relocate to a cheap country like Portugal or Croatia.

No Emergency Fund

Just because you are now retired doesn’t mean you will never face an emergency. This is why you should never spend the money on your emergency fund. If you don’t have one, create one as soon as possible. You never know if your car will break if your roof will get damaged because of an intense weather phenomenon, or if your children may need financial help for some time.

Making Big Purchases

While you may want to buy that boat or get a fancy sports car, you need to reconsider. Large, expensive purchases don’t often fit into a retiree’s budget. People on a fixed income typically do not have a lot of extra cash to splurge on large items. While you may really want to buy something big and fancy, you need to assess if it is within your budget and worth it. Gone are the days of frivolous spending! Retirement is more of a time to be frugal rather than spend lavishly.