5 Big Don’ts for Retirement

5 Big Don’ts for Retirement

Mistakes or failure to do certain things in retirement can lead to financial distress, mental anguish and lack of enjoyment. Here are several important things to avoid, if possible:

Mistakes or failure to do certain things in retirement can lead to financial distress, mental anguish and lack of enjoyment. Here are several important things to avoid, if possible:

  1. Don’t forget to develop a retirement budget. When you’re working it’s easier to manage your expenses without a budget . Not having a budget usually signifies lack of attention for opportunities to save among other advantages. Entering retirement and living on fixed income streams and savings is a new experience that give retirees much less room for adjustments, especially when unexpected expenses arise. Planning for long term care expenses not covered by Medicare and Long-Term Care Insurance is an important task.

 

  1. Don’t take social security too early. Think of social security as a benefit that reduces your risk of living too long. Waiting as long as you can to collect will increase your income in later years. Only if you expect a shorter lifespan or absolutely can’t live without it, should you take social security early. Also, remember there is an earnings test before age 66 or 67 (depending on when your full retirement age begins based on your date of birth).

 

  1. Don’t ignore the impact of inflation on your expenses. With expenses of food and healthcare now rising at a faster rate than other categories, planning on low inflation is not a useful strategy. Most pensions don’t have a cost of living adjustment and even those government pensions that do, retirees can expect those income streams to lose purchasing power over time as laws change to reduce taxpayer liabilities.  Not becoming too conservative in investment strategy and watching your spending in controllable areas are two techniques for success in maintaining the standard of living you desire.

 

  1. Failure to have an income withdrawal strategy. Warren Buffett designed a withdrawal strategy for his widow. He directs his trustee to sell everything and put 90% of the proceeds into the Vanguard S&P 500 Index fund and 10% into treasury bills. “In good years paying her out of the index fund”, he’s quoted as saying, “and in bad years pay her out the T-bills.” That’s the simplest withdrawal plan I’ve ever seen and probably not applicable to most folks of limited means, but it does show you how billionaires think and plan ahead.

 

  1. Don’t wait to move until there is an emergency. It’s easy to postpone a move to easier and simpler living situations as one gets older. No reason to hurry because you’re feeling fine and handling the chores that accompany your primary residence. But mobility and mental acuity decline over time.  When retirees experience a stroke or another quick onset condition that limits physical and mental abilities, it could fall to other family members to take charge and move you without your input or taking your feelings into account. Moving to a housing situation where you are freed from chores and maintenance, is easier to do before some situation develops that precludes you visiting potential options and making your own decisions.

 

There are many more things you need to consider and more things to avoid. These are the big five errors I’ve seen new retirees commit and later regret. Don’t make the same mistakes or fail to complete certain tasks we’ve mentioned.

 

Jim Ludwick
Jim Ludwick
jim@mainstreetplanning.com

Jim Ludwick is the founder of MainStreet Financial Planning. His varied education and life experiences have enabled him to apply his knowledge and experience into useful solutions for personal financial problems. His writing and broadcasting activities allow him to help many more than just individual clients. He loves a microphone.

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