What is life if not a series of mistakes? While sage Americans recognize that each mistake is an opportunity to learn, some of us hope that we will use our wisdom to keep errors to a minimum by the time we retire.
Rest assured that being over 66 (or whatever age you are when you retire) does not prevent mess-ups. To err is human; you don’t stop being human once you start collecting Social Security.
Rather than assuming you have it all figured out, recognize your fallibility and use others’ cautionary tales to avoid these 16 common retirement mistakes.
1. Continuing Your Pre-Retirement Bad Habits
Whether ordering a guilty pleasure on DoorDash when the fridge is stocked, hitting the slot machines, or splurging on extravagant gifts for loved ones, we all have habits we need to curb—if not abandon altogether.
Many justify these habits by telling ourselves we’ll just work harder to out-earn our financial indiscretions. But what happens when you can no longer work? When you’re retired, bad habits become inexcusable habits.
2. Constantly Seeking Greener Pastures
Retiring is often synonymous with moving, and destinations like South Florida and Arizona have long been magnets for the formerly employed contingent. While a strategic move can produce heightened quality of life and even lower living costs, you should never move just for moving.
Sometimes, staying put in retirement is the most financially advantageous decision. Greener pastures can be greener because they require you to fork over more green (those Florida HOA fees are no joke). If you’re planning a move, be certain it is the right decision for your quality of life and bank account.
3. Getting Scammed
Scammers view older people as easy targets, and they’re not wrong. Retirees tend to have more time on their hands, can be more starved for connection, and are not always in the loop about the latest tactics employed by cunning criminals.
Increasingly sophisticated scams have fooled even the sharpest, most skeptical whipper snappers. One retiree lost her life savings of $661,000 dollars to a fraudster posing, ironically, as a “fraud investigator.” There is no refund policy for the money you’re scammed out of, so treat every request for personal information or money as a scam until proven (beyond a doubt) otherwise.
4. Assuming You’ll Be an Iron Man Until Passing from Natural Causes
There is much wisdom in the saying, “hope for the best, plan for the worst.” While we hope to live our lives without any cameos from illness or unforeseen injury, the data suggests that this is primarily a pipe dream.
Medicare comes with premium payments and other little-discussed financial burdens. If you don’t beef up your healthcare budget in advance of retirement, you’re planning for potential financial disaster if you become sick or seriously injured.
5. Quitting Because You Feel You Have To
Retirement does not necessarily mean the end of your working days. While everyone should consciously prioritize some degree of R&R during retirement, many fare poorly with too much downtime.
While some retirees find plenty of fulfillment in boat rides, travel, woodworking, and other unpaid ventures, many people find that working (even in a reduced capacity) is their most stimulating state. Retire because you want to, not because society expects you to.
6. Building Work Into Your Retirement Plan
Today’s American workers reports being burned out before they even enter the workforce. Odds are that, unless you truly love your job, you’ll be more than ready for a reprieve by the time you turn 75.
Many of us justify our poor spending and saving habits by casually thinking “I’ll just work until I die.” While you should live life meaningfully every day, you should also plan as if you’ll stop working at some point. Working the day before your funeral is neither reasonable nor glamorous, except in the rarest cases.
7. Claiming Social Security Before You Need To
Most retirees can receive Social Security payments early, typically at age 62. While this option can be a financial lifeline for the desperate and needy, Social Security should be your lender of last resort.
Those who take Social Security early receive less money per year, have their cost of living adjustment reduced, and will see their Social Security payments reduced if they are still working when they begin collecting. Patience is usually prudent if you can wait to claim your paycheck from Uncle Sam.
8. Not Taking (Tax) Shelter
Whether it’s a 401(k), Roth IRA, or other tax-deferred investment vehicle, you should be taking full advantage of resources that minimize your tax burden. Your retired self will thank you later.
There is a catch, as 401(k)s can have hidden management fees that offset the tax benefits they promise. Therefore, you should do your homework on the ins and outs of prospective tax shelters but ultimately take advantage of these investing tools (universal features of millionaires’ portfolios).
9. Missing Out on Compound Interest
Money saved when you’re 45 is not nearly as valuable as when you’re 25, or even when you are 40. The law of compounding interest. The money you invest produces interest over time, which gets tacked onto your initial investment, meaning your interest payments earn interest.
The longer you allow interest to accrue, the more money you ultimately earn passively. This means the longer you wait to invest in retirement, the more passive income you will lose.
10. Accessing Your IRA or 401(k) Early
Regarding your retirement financial strategy, you should have a soccer player’s wariness of “penalties.” Like paying interest to credit card companies, paying penalties to withdraw early from your 401(k) or IRA is tantamount to lighting money on fire.
Beyond direct penalties, those who borrow from their retirement accounts generally don’t contribute as they repay the loan. This means facing a double whammy of losses.
11. Failing to Set Boundaries in Your Online Purchases
Frivolous spending is one of the most common ways for retirees to return to the workforce, borrow from loved ones, and face other consequences of insolvency.
Regarding overspending, few forces are as insidious as Amazon, and I’m not talking about the jungle. Online purchases are far too easy, but their consequences could not be steeper for retirees who fail to track and contain their spending.
12. Lending or Gifting Money You Can’t Afford To
Parents giving their children a financial leg-up is not only acceptable but somewhat expected in our society. However, when gifting or lending money to a loved one puts the lender in a position of financial hardship, everyone loses.
If you are considering helping a loved one financially, ensure you can truly afford to never see that money again. Otherwise, steer your relative to the nearest lending institution.
13. Making Long-Term Financial Commitments
Timeshare? Thanks, but no thanks. High-interest car loan? A poor decision for a young buck, let alone a retiree.
Locking yourself to any long-term financial commitment is a recipe for financial disaster, particularly when you no longer have the willpower (or perhaps the option) to return to a high-paying job.
14. Letting Your Money Sit
While retirees (or anyone, for that matter) should not generally invest heavily in Bitcoin or take gambles on penny stocks, you also can’t afford to let your money sit in a savings account that earns you a dollar a year.
Every American must take every responsible measure to keep pace with inflation, which means using high-yield savings accounts, index funds, and other reliable-but-not-risky investing options.
15. Investing Like a Gambler
If you will retire with the financial security you need, you must do basic research into age-specific investing strategies. The risk you can tolerate in your 20s is, for most, intolerable in their 40s, 50s, and 60s.
The older you get, the more your investing should be geared towards wealth preservation and modest returns. Losing a quarter of your portfolio can be a serious challenge when you’re 35. The same loss can be downright devastating when you are 50 or older.
16. Failing to Make a Succession Plan
It would help if you decided whether you will retire selflessly or recklessly. While your first priority is to ensure you can support yourself through the remainder of your life, the next step is ensuring your loved ones will be good once you ascend the stairway to heaven.
Your loved ones already know you care about them, but leave no doubt by ensuring your assets are bequeathed to those most deserving of them.
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I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.
