If you’ve spent years saving for retirement, you probably don’t plan on using up all of your savings. But unfortunately, that’s exactly what can happen if you’re not careful.
To ensure you enjoy a financially secure and comfortable retirement, avoid common mistakes that have derailed even wealthy retirees.
Taking excessive risks
There is a time and place to take financial risks – and it is not retirement.
Wealth advisor Sharon Hayut, Senior Managing Director at Magnus Financial Group, has observed this development among her clients.
“As an advisor, I often see people taking excessive risk as they enter retirement, making them vulnerable to market corrections.”
There’s a term for this risk: follow-of-return risk. Your long-term average returns on your investments are important, but it’s also important when you get big returns versus losses. A stock market crash early in your retirement can wipe out so much of your portfolio that it never recovers.
The same stock market crash a decade later could leave your portfolio on the upswing for the long term – because it had a chance to grow before the next bear market.
Lack of emergency fund
Hayut added that the emergency funds are not just for those who are still working.
“Another common mistake is not having an emergency fund with at least six months of expenses to cover unexpected costs, whether it’s for healthcare or something as simple as the need for a new car. When mistakes like this happen, they can significantly impact financial stability and peace of mind.”
Without an emergency fund, many retirees will have to sell their investments even if they lose money in a down market. Avoid forced sales in retirement as much as possible.
Pay high taxes
Whether you’re retired or not, you’ll still have to pay taxes. But with careful planning, you may be able to reduce the amount you pay.
“Underusing tax-advantaged accounts is a common mistake,” said Mike Falahee of Marygrove.com. “Roth contributions are taxed up front but are tax-free, and you pay no taxes on withdrawals in retirement.”
If the government takes less of your income in retirement, you won’t need as much gross income to survive. That, in turn, means you won’t need to save as much in your emergency fund.
No adaptation to changes
As your circumstances change, your expenses should change too.
“Retirees often fail to adjust their financial plans as circumstances change,” Hayut said. “Life events such as the death of a spouse, unexpected medical expenses or economic downturns can significantly impact your financial situation. Regularly reviewing and adjusting your retirement plan can help you stay on track and make necessary changes to avoid financial hardship.”
Paying high withdrawal fees
Hayut said: “Avoiding money mistakes requires careful planning, disciplined spending and regularly reviewing your finances. It’s important to work with a proactive advisor who can help retirees ensure their savings will last throughout their retirement.”
This was the case for Cem Oezulus, who emigrated to the United States and co-founded a small business called The Brot Box. He retired, but has had to adapt quickly since then.
“I retired with a fortune and didn’t expect that excessive spending and high withdrawal rates would eat into my savings so quickly,” Oezulus said. “Poor investment decisions and lack of diversification further compounded the financial burden. These mistakes forced me to drastically change my lifestyle and adopt a more cautious financial approach.”
Ignore available benefits
Most people are unaware of how many benefits they are eligible for or how many programs are available to them.
Attorney Marty Burbank of OC Elder Law sees this all the time with his retired clients.
“Many of my clients, especially veterans, were not fully aware of the benefits available to them through programs like Aid and Attendance. I once worked with a veteran who went without thousands of dollars in benefits simply because he didn’t know how to apply for them.”
Burbank added: “Taking advantage of all potential sources of income and support can make a significant difference in retirement planning.”
Whether you retire with $300,000, $3 million, or $30 million, you can lose it all if you’re not careful.
Avoid overspending, build an emergency fund, and meet with a financial planner or advisor if possible. You don’t have to hand over all your money to them to manage for you; you can simply pay a flat fee or an hourly rate for expert advice.
It could mean the difference between a comfortable retirement and a life of non-stop work.
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