After years and years of hard work, the prospect of retirement can sound pretty appealing to just about anyone. You put away money from each paycheck to ensure there will be plenty of money saved when you want to enjoy your golden years as comfortably as possible, so it is only fair that you would want to hang onto as much money as possible for as long as possible. However, sometimes seniors make financial errors that cost them money they did not need to be spending.
Here are 10 financial mistakes to avoid during retirement to save money:
1. Beginning Social Security too early
Although eligibility for social security begins at 62, it is not necessarily the wisest idea to start taking it at that point. If you do, you will receive a benefit that is reduced from what it would be if you waited until you are 66 – about 25-70% less.
2. Spending too liberally too soon into retirement
It can be mighty tempting once you retire to jump right into hobbies, go on long trips, and go out a lot more than you used to. But remember, you only have a finite amount of money to work with, so you don’t want to blow everything you have when you may need it somewhere down the road.
3. Being too invested in your house
Many seniors spend 40-50% of their income on their homes. Though their house may be an appreciating asset if they are lucky, it is still also a consuming one. Upgrading your home will end up costing you more in real estate taxes, coinsurance, utilities, services, repairs, and replacements – all of which will further reduce your discretionary spending. Downsizing may be the right option.
4. Keeping too many cars
Cars are one of the most notorious items for being a depreciating asset. As a car gets older, the more repairs and maintenance it may require. Then there is also the matter of fueling and insuring it. All of these expenses add up pretty quickly, and if you have multiple cars then it is that much more costly. Consider selling any car(s) you do not need to avoid spending unnecessary retirement funds.
5. Underestimating medical expenses
The older we get, the more we need to visit the doctor to address medical issues that may crop up. Depending on an individual’s health, medical costs can mount up pretty quickly. If you underestimate how much these costs will be and overestimate what your Medicare benefits will be, you could be in a tough spot. If you have some serious health problems, the deductibles and co-pays can add up fast and some expensive drugs may not even be covered at all. It is important to have plenty of money set aside for medical expenses.
6. Getting scammed/sold on things you do not actually need
Older people can often be easy targets for vendors looking to sell annuities, insurance policies, and sometimes fraudulent investments. Before making any large investments, make sure to run everything by a financial advisor such as a representative at your bank.
7. Retiring too early
In addition to the reduced social security benefits mentioned earlier, retiring too early can have other negative consequences as well. You may not have saved up enough money before retiring and you do not know how long you may be around. It could be a while, and you do not want to run out of money if you make it to your 90’s.
8. Underestimating cost of living
It is easy to underestimate just how much money you might need when considering retirement. You may think you will just be conservative with your spending and everything will be kept cost effective. However, unexpected things can come up and you will be in a situation where you wish you would have known about such things ahead of time. Plus, you will also still want to have money to do the things you did before retirement as well.
9. Putting savings in the wrong places
People will often times, out of fear, keep too much of their money in CD’s and savings accounts, which over time may lose value due to inflation. And on the other hand, people who are afraid they started saving too late will often choose to make high investments that promise a high rate of return but can often be more volatile – thus causing the potential to lose more money. It is wise to diversify your funds. Have your eggs in more than one basket, that way if one investment goes wrong you are not up the creek without a paddle.
10. Not having a plan
The retirement phase of your life is a major milestone. After years of paying your dues, it is time for you to enjoy the fruits of your labor. However, if you do not have a solid plan put together, you might run into trouble pretty quickly. You could end up running out of money too soon because you did not plan properly. Sit down with a certified financial planner to start making a detailed plan for how you are going to save for retirement.