After years of hard work, it’s important to savor your retirement years. However, living on a fixed income requires careful financial management to avoid reckless spending.
GOBankingRates consulted with financial experts to uncover common ways retirees squander their savings. By learning from these mistakes, you can make informed decisions to safeguard your retirement funds for the long haul.
**1. Excessive Investment Fees**
While financial advisors are beneficial for retirement planning, watch out for high fees eating into your returns. Ensure that the services provided justify the costs to maximize your savings.
**2. Missing Out on Senior Discounts**
Researching and taking advantage of senior discounts can lead to significant savings on various expenses like dining, travel, and entertainment. Explore online resources such as AARP to uncover these deals.
**3. Neglecting Health**
Investing in your health may seem costly upfront, but neglecting it can lead to substantial healthcare expenses down the road. Prioritize a healthy lifestyle to mitigate future medical costs.
**4. Unnecessary Home Remodeling**
Avoid dipping into your retirement savings for unnecessary home upgrades. Early withdrawals can deplete your funds, posing a risk to your financial security in the long term.
**5. Supporting Adult Children**
While it’s natural to support your children, retirees should encourage financial independence in their adult offspring. Providing ongoing financial assistance can strain your savings, impacting your own retirement goals.
“Prioritize long-term financial health,” advises Renee Johnson, editor-in-chief of The TechReport, cautioning against carrying credit card debt in retirement. She suggests avoiding credit cards altogether due to their potential to lead to unnecessary expenses. Opt for cash or debit card purchases instead. Mark Charnet, founder of American Prosperity Group, advises against overspending on luxury cars, emphasizing that a basic model serves the same purpose without jeopardizing financial stability. Similarly, John Occhipinti of Wheelhouse Partners recommends downsizing to a single vehicle to reduce costs.
Retirees are especially vulnerable to scams, warns Kevin Prince of StratoZen, urging vigilance and education to avoid falling victim. When it comes to investments, Robert Glazer of Acceleration Partners advises retirees to be cautious, as they have a shorter timeframe to recover potential losses. Chalmers Brown from Unit21 stresses the importance of downsizing housing to save on maintenance costs and allocate funds elsewhere.
Overall, these experts emphasize making wise financial decisions to secure a stable retirement.
“Many individuals often aim to purchase a large home a few years before retirement or during the transition into retirement, which contradicts the strategy we recommend,” stated Michael Lackwood, the founding principal of New York’s Spring Delta Asset Management. Lackwood also advises downsizing in retirement.
Retirees often find themselves with more free time, leading them to engage in shopping as a hobby. John Rampton, a serial entrepreneur, notes that retirees may spend unnecessary money at malls or online shopping for items they don’t really need. Rampton suggests developing hobbies that require less spending instead of mindless shopping.
Engaging in other expensive hobbies can also drain one’s finances. Lackwood emphasizes the importance of moderation in pursuing costly hobbies like scuba diving or yacht racing to avoid straining your retirement budget.
Retirees often carry redundant insurance products that they continue to pay for without reaping any benefits. Nate Nead, an investment banker, recommends dropping life insurance and disability insurance once you are no longer working or supporting dependent children.
For necessary insurance plans, ensure you are obtaining the best rates available. Leslie Tayne, the founder of Tayne Law Group, advises retirees to regularly review and compare insurance policies to avoid overpaying. Discounts may be available for retirees on auto and home insurance policies.
While it’s admirable to donate to charities, retirees with limited income should set a budget for charitable contributions. It’s also beneficial to explore non-monetary ways to support nonprofits, such as volunteering your time.
If you own a second home, consider selling it before retiring to prevent it from becoming a financial burden. Lackwood warns that maintaining a second home can be costly, and changes in real estate tax laws may make it less favorable. Selling the second home and utilizing the proceeds wisely is advisable.”
Here is the revised text:
“Tips on Retirement Savings: 4 Common Expenses Retirees Regret Keeping in Their Budgets, According to Experts
Collecting Social Security Too Early
Experts advise against starting to collect your Social Security benefits too soon. Yenn Lei, co-founder and CTO at Frate, cautions against this practice, emphasizing that waiting to claim your benefit can significantly increase the amount you receive. By waiting until age 70 instead of claiming at 62, you could potentially receive around 30% more.
Not Maximizing Social Security Benefits
In addition to collecting Social Security too early, retirees may miss out on maximizing their benefits. Lackwood points out that surviving spouses over 65 may be eligible to collect on their deceased spouse’s Social Security, providing a higher payout in the long run.
Neglecting Medicare and Long-Term Care
Instead of self-insuring for healthcare, retirees are encouraged to consider supplemental Medicare and long-term care options. Lackwood suggests integrating these coverages with life insurance to offset nursing care costs while safeguarding against unnecessary expenses.
Excessive Dining Out
While enjoying the occasional restaurant meal is acceptable, frequent dining out can strain retirement funds. Lackwood advises that cooking at home not only saves money but also promotes long-term financial stability.
Overspending on Taxes
Proper tax planning is essential for retirees to minimize tax obligations and retain more of their income. Stoyan Panayotov, CFA, recommends proactively managing taxes to avoid unexpected liabilities and preserve financial resources.
Failure to Review Investment Portfolio
Retirees are cautioned against adopting a passive approach to investment management. Charnet advises periodic portfolio reviews to make necessary adjustments, underscoring the importance of maintaining a strong relationship with a financial advisor.
Cashing Out Pensions Prematurely
Despite the allure of a lump sum pension payout, financial experts discourage this practice, emphasizing the long-term benefits of preserving and managing pension funds strategically.”
“Are you interested in having extra money in the bank to earn interest? Unfortunately, this decision could end up costing you thousands of dollars in commissions for your financial advisor,” cautioned Tayne. “Before making any significant financial choices, take your time, don’t feel pressured, and carefully review the fees and terms to ensure it’s the right time to withdraw funds.”
Overpaying for cellphone plans and other utilities is a common issue among retirees. They might be paying for unused data or extras without realizing it. Tayne suggests asking carriers about discounts for seniors or retirees, as some companies offer exclusive plans for this demographic. Cable and satellite TV providers are also known for gradually increasing bills or offering promotional rates for a limited time. Even if under contract, it’s worth calling to inquire about better rates or downgrading packages.
Some retirees consider starting a new business or side hustle to generate income post-retirement. While this can be a wise move in some cases, it can also be financially draining. Kirsner advises caution, noting that most businesses fail, especially when launched during retirement. If pursuing a business venture, ensure to calculate costs to maintain financial balance. Opt for a home-based business with low overhead expenses.
In retirement, it’s crucial to reduce portfolio risks compared to when working. Kirsner emphasizes the importance of aligning risk levels with personal goals, as significant losses in retirement assets require substantial gains to recover. Consulting a fiduciary financial planner before major investment decisions is recommended.
Retirees often overspend by failing to distinguish between wants and needs. Prioritizing wants over needs can lead to unnecessary expenses. Before making a purchase, especially a costly one, ask yourself if it’s truly a necessity or just a desire.
These tips aim to help retirees avoid careless spending and make informed financial choices.
