5 Financial Mistakes to Avoid in Retirement

  • Overspending- Given the free time and flexibility with retirement, it’s easy to overspend. Retirement could last 20 years or more, so keep your lifestyle at sustainable levels.
  • Disregarding Inflation- Inflation adds up over time. If you need $5000 a month to live now, you could need $10,000 a month in just over 20 years to support the same standard of living. It may still make sense to keep some assets invested in equities to grow over time and hedge against inflation.
  • Underestimating Medical Expenses- Medicare does not cover all health care expenses-including deductibles and co-payments, as well as cost of dental care, vision, hearing conditions and long term health care.
  • Undervaluing Social Security Benefits- Social Security is a source of income that you can’t outlive, so deciding when to file for it is a critical step. You can start collecting benefits as early as age 62, but waiting to collect can pay off. For example: at age 66 (for someone born 1943-1954, for example) you would receive 100% of your monthly benefit. At age 70 you would receive 132% of your monthly benefit. When you reach age 70, your monthly benefit stops increasing, even if you continue to delay taking benefits.
  • Retiring To Soon- The age at which you retire impacts your income and lifestyle. If you choose to retire early it could result in a lower Social Security benefit given less lifetime earnings that factor into the calculation. Early retirement also requires more assets to fund essential and lifestyle expenses, account for inflation and self- fund your health care before you are eligible for Medicare.