Financial Planning

Common Financial Mistakes to Avoid During Retirement

Published by Bob Gustafson

Common Financial Mistakes to Avoid During Retirement

Unfortunately, people make various financial mistakes during their retirement years. But some are more common than others. Read below to learn the four most common financial mistakes made during retirement that you should avoid.

Not Investing in Enough Stocks

One example of a common mistake is not investing enough money in stocks. Most are aware as we grow older, we should become more conservative financially. The problems arise when individuals try to define, on their own, what conservative means. They take it upon themselves to decide, without the help of an expert, how much they should invest in stocks. And more often than not, they’re not investing enough.

And when you don’t invest enough (especially in a low interest rate environment like we’re in now) your portfolio won’t have the ability to keep up with inflation and grow over time. So, there’s a certain level of risk you need to take. However, how much risk you want to take is dependent on your personal situation. If you have any uncertainty at all, you should talk to a financial advisor for advice on how much stock should be in your portfolio.

Living in a House that’s Too Big

Unless you’re independently wealthy, there are some real downsides to living in a home that has more space than you need. Never mind the mortgage payments, the taxes and upkeep of a larger home can cost hundreds of thousands of dollars over the course of your retirement. And that’s money you really don’t need to be spending. Thus, it’s important to think through how much space you need and if/when you should downsize.

Make a decision about your future living situation before you stop working. Evaluate your home as it is today. As your grow older, will it still be feasible to live there without making major investments? For example, if you don’t have a downstairs bedroom and your stairs are extremely steep, will you be able to continue to live there if you have mobility issues? You should think about selling the house sooner rather than later for a couple of reasons.

First, there’s the compounding effect. If you downsize your home once your kids move out rather than waiting until retirement, you’ll save on mortgage payments and upkeep. And if you invest that savings, you’ll make even more money. This is known as the compounding effect. And it really makes a difference.

Another reason why it’s better to sell your house before retirement is a psychological one. Research shows as people age they become more resistant to change. So, if you don’t sell sooner rather than later, you may have a hard time actually making that change later in your life.

Not Taking into Account Helping Grown Children Financially

Many people don’t give their grown children a second thought when it comes to helping them out financially. But with the divorce rates so high and the exorbitant cost of education, many retirees are having to help their grown children financially. And most people never even plan for it. Before you hit retirement, think about either setting some money aside or making a decision about how much you can afford. And then don’t go over that amount.

Retiring Too Early

Some people have a certain age in mind when they want to retire. And no matter what, when they hit the age, they retire. That’s all well and good if they’ve planned for it. But what they may not have planned is what they’re going to do all day (especially when all their friends are still working). And worse yet, there’s a correlation between retiring early and dying early. So, be sure to think about working longer. It will benefit you financially and may just help you to live a longer and happier life.

There are many financial mistakes people can make prior to retirement, but these four mistakes are ones we have seen affect people after they have chosen to retire. Listen to our podcast below for more information. And if you have questions about any of this advice, give us a call today.