Avoid these common retirement pitfalls
Once your primary career winds down and you shift toward leisure or different modes of work, effectively maintaining your nest egg becomes more crucial than ever. Wisely managing your resources can help you realize the retirement lifestyle you’ve been dreaming of. With that in mind, here are some common retirement missteps you should try to avoid.
Spending Like You Used To
While it’s important to enjoy your retirement years, it’s just as important to be realistic about your finances. You may have a different income compared to your working years. You may also find yourself with more time to pursue varied interests. The first few years of this new phase can be an adjustment period, particularly if your income becomes more fixed or if you choose to engage in less formal work.
Spending habits can be hard to break. Start by identifying your various income sources – from Social Security to taxable and tax-advantaged investments – and then outline your current and future expenses. Be sure to consider not just your bills (medical, housing, etc.) but also how you’ll spend your time in retirement. Do you see yourself traveling the world, pursuing hobbies, or perhaps taking on part-time work? What types of leisure activities would you like to engage in? Use your projected monthly income and expenses to come up with a sustainable withdrawal strategy that’s reflective of your new reality.
The Elevage Partners team of advisors and financial planners can help you with this important process – and make sure your finances and your WHY are aligned.
Giving Too Much Away
Whether it’s spoiling the grandkids with gifts or providing some extra financial support to your adult children, giving too much money away is a frequent cause of financial strain for retirees. It’s okay to show generosity to loved ones, but keep an eye on your spending and ensure that it falls within your budget. Remember that your children and grandchildren are likely far better positioned to recover from financial difficulties than you are, so be careful not to put your financial security at risk.
Forgetting to Account for Healthcare Costs
Even if you’re healthy and active today, it’s advisable to have a healthcare savings plan. After all, you never know when you might need it. Consider your current health, whether you’re predisposed to any health conditions, and what you might require in terms of long-term care. Then build a buffer into your budget for the unexpected. Without a safety net, an injury or illness could result in hefty bills that eat into your retirement savings.
Accumulating New Debt
Another common mistake people make in retirement is taking on new and unnecessary debt by upsizing or making extravagant purchases. If you’re considering buying a larger home, a new car, or flying around the world in first class, consider how those expenses fit into your budget and whether you’d have to finance them with debt. Having an emergency fund can help ensure you don’t have to use credit cards or loans to cover unexpected expenses. If you have outstanding debt, prioritize paying down the accounts that charge the most interest to keep them from accumulating and draining your nest egg over time.
Investing Too Aggressively
Your approach to investing should be reflective of your goals and circumstances, both of which can evolve over the course of retirement. If you’ve had an aggressive investment allocation in the past, you may want to consider a more conservative approach that’s more focused on capital preservation. Failing to adjust your allocation can expose you to undue risk and could result in losses that you don’t have the runway to recover from. An Elevage Partners advisor can help you assemble the right mix of investments based on your circumstances, your retirement timeline, and your WHY.
Putting All Your Eggs in One Basket
Diversification represents a pillar of any well-rounded investment strategy. Whereas being too heavily invested in one asset can leave you vulnerable to adverse market movements, diversifying your investments across different asset classes and within those asset classes can keep you from being too exposed to a particular name or sector. Diversification can help you manage risk and smooth out your portfolio’s performance during volatile periods. Our in-house investment management team works to align your portfolio to your goals.
Paying Too Much in Taxes
Tax bills are inevitable. But there are ways you can manage your total tax obligation by planning proactively. Take some time to understand the various rules surrounding retirement account withdrawals so you can avoid having to pay penalties for withdrawing funds too early or missing a required minimum distribution. Our advisors, working in concert with your tax professional, can help you manage your nest egg in a tax-efficient manner.
Thinking Too Short-Term
Perhaps the most common worry in retirement planning is whether you have enough saved. Over the last century, advancements in healthcare and technology have extended life expectancies and improved Americans’ quality of life, which can make it more challenging to anticipate the full cost of retirement. That’s why it’s important to plan conservatively and not sacrifice your long-term financial stability by taking a short-term view. Thinking of your retirement in five-year blocks may help you achieve a more complete picture of your golden years. Our advisors can guide you through this process, helping you make decisions that best align to your WHY and your ideal future.
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