Many people picture living a life of luxury in retirement. Going on lengthy vacations. Indulging in pricey hobbies. Moving to a posh community.
You may think you have plenty of money in your nest egg for such things. But you can make some major mistakes as a new retiree that can set you back significantly from a financial standpoint.
Let’s take a look at some of the major pitfalls of new retirees so you can do your best to avoid them.
1. Transitioning too quickly
After retiring, many people make hasty decisions in such quick succession that they often find themselves financially strapped.
Before you purchase an RV to travel around the country, invest in a vacation home, or make a big move to be closer to family members, take some time to evaluate your budget.
If you’re considering such major life transitions, it’s important to stop and evaluate your decisions from a financial standpoint. Will your retirement budget realistically cover your choice and leave plenty left over on which you can live?
It’s a good idea to wait at least a year after fully retiring before making any major moves. That should give you plenty time to settle into living with an adjusted income stream. You'll also be able to evaluate how much is left over for extra expenditures.
2. Shying away from investment risk
Yes, it’s a good idea to be more conservative with your investments once you retire. You don’t have the same time horizon to adequately recover from losing a large chunk of money in the stock market as you could when you were younger.
But at the same time, you can also be too cautious with your investments, to the point they’re no longer working in your favor. Even with a more conservative approach, you can still maintain a healthy diversification of your portfolio. Talk with a trusted financial professional about whether you’ve got a good mix of stocks, bonds, and cash that’s appropriate for your age and life expectancy.
3. Not discussing retirement goals with your partner
Yes, I know talking about money with your significant other is often a dreaded task. But it’s important to discuss how you’ll manage money and spend your time in retirement before your golden years are upon you.
Communication is key when it comes to money and retirement. If you’re both on the same page, you’ll likely be in a happier place. If your expectations aren’t aligned, work together until you find some common goals to strive for. A financial professional can also help the two of you see eye to eye and establish some realistic goals for retirement.
4. Letting your kids borrow your hard-earned money
Let's say your child asks you for a significant sum of money when you’re newly retired. Take some time to evaluate the situation before making a decision. Lending money to friends and family is always a tricky situation, as there is often an issue with repayment. If you decide you do want financially assist one or more of your children during retirement, prepare yourself to cut losses. Can you afford to lose that sum of money if your loved one never pays you back? Carefully consider your answer. It’s also important to first discuss the situation with your partner to make sure he or she agrees lending your children money is a wise decision.
5. Not preparing for emergencies
It’s great if you know exactly what you want in retirement and you’ve financially planned for your goals. But it’s also important to plan for the unexpected.
What if you suddenly find yourself financially assisting a family member? A loved one may need you to help cover his or her medical bills. You could also find yourself supporting an aging parent that moves into your home.
Take such situations into account when mapping out your retirement plan. A financial expert can help you estimate the financial impact of various scenarios so you can have some adequate emergency funds set aside.
The bottom line
Retirement is a time of relaxation, enjoyment and spending time with family. Don’t let financial stress get in the way of living your golden years to the fullest. Take time to prepare today so you can rest confidently in what tomorrow may hold.