Whether you're planning to retire early or spend many more years on the job, it's crucial to have your finances squared away before your working days are done.
Retirement can be a wonderful time, but financial missteps can turn it into a struggle.
Let's look at some behaviors that could trip you up and leave you financially strapped in your golden years.
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1. Filing for Social Security too early
Social Security plays a crucial role in providing retirement income for most Americans. You can start collecting Social Security as early as 62 years old. However, collecting early reduces the size of your monthly benefit for the rest of your life.
There are situations where claiming early is the best strategy. But, in many cases, filing for Social Security too early can leave you in financial jeopardy over the long run of your retirement.
If you claim early and then discover later in retirement that you don’t have enough money, you might have to return to work or find other ways to supplement your Social Security .
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2. Selling at market lows
It can be scary to watch your investments lose money when the stock market turns south . You might feel pressured to sell. After all, you are depending on those investments to provide income during retirement.
But selling at market lows is often a devastating mistake. History is full of people who sold when stocks were down and then missed out on a subsequent market rebound.
3. Failing to create a budget
You may have relied on a budget when you were working to help allocate money for food, housing, and utilities, as well as for discretionary spending such as dining out or taking vacations.
It's also important to keep a budget when you are retired. You can even create different budgets to see how potential scenarios — such as market declines or earning extra money through part-time work — might impact your bottom line.
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4. Not having an emergency fund
An emergency fund should be an important part of your budget regardless of whether you are working or have retired.
Your emergency fund can be a crucial source of income should you encounter unexpected health issues or home repairs. Without an emergency fund , you could end up depleting your savings faster than you expected.
5. Not planning vacations wisely
Retirement is a great time to travel. However, some vacations can be expensive.
If you don’t plan well, you could end up spending more than you anticipated, which can really set you back financially.
6. Buying expensive gifts for loved ones
Buying expensive gifts for loved ones during birthdays and holidays will always be a temptation, regardless of whether you are working or are in retirement.
However, expensive gifts deplete your savings and can hurt you financially if you're on a fixed income.
Make Money: 8 things to do if you're barely scraping by financially 7. Paying too much for medical care
Medical expenses can add up quickly when you're retired, so you need to be prepared financially before you stop working.
Put some money aside for health care, as Medicare does not cover all expenses. Also, consider purchasing long-term care insurance in case you need extra assistance when you're older.
8. Financially supporting adult children
Paying yourself first is one of the most important rules when it comes to saving for retirement and staying solvent during your golden years.
It can be tempting to help your adult children when they struggle financially. Instead, remember that they have plenty of time to earn money to cover their expenses.
On the other hand, you are less likely to have a robust income during your golden years.
9. Spending too much on your home
Downsizing to a smaller place during retirement can be a great way to save money.
It can be hard to downsize after years of living in a larger home. But remaining in that large abode — or worse, buying something even bigger and more expensive during retirement — can deplete your savings.
Are you a senior? Avoid these 6 sneaky money mistakes 10. Moving to an area with a high cost of living
Many people are ready for a change during retirement. They often want to move somewhere warmer.
But keep in mind that you might be in for a bit of sticker shock when it comes to how expensive that new location is. So, make sure to visit a place before you move there.
Do research on how much goods such as groceries and expenses such as utilities are likely to cost you in the new town. Find out how much homes cost and how much you might pay for insurance.
11. Falling for scams
Retirees are a popular target for scammers. These thieves might try to trick you into giving them your savings.
If something sounds like a scam, it probably is. Make sure to ask questions and don’t give anyone money until you talk to someone you trust, such as a family member or someone at a financial institution.
12. Not changing your asset allocation
Perhaps you were gung-ho about saving money in a 401(k) during your working years. Maybe you did well and earned big returns on your investments.
But now that you no longer have a regular income coming in, it might make sense to adjust your asset allocation to something less risky.
Markets can be volatile, and it might be harder to recover from market downturns when you don’t have extra years of salary earnings ahead of you.
Earn Points and Miles: Find the best travel credit card for nearly free travel 13. Forgetting about inflation
Inflation never really goes away. Sometimes — such as now — the problem of rising prices is particularly bad.
Make sure you account for inflation in your budget so groceries, utilities, and health care costs don’t drain your account. Retiring too soon without thinking about the ravages of inflation can set you up for financial failure during retirement.
14. Not adjusting your plan
It's possible that during retirement, you will need to live off your savings and investments for decades. So, it's important to continue to revisit your retirement plans as you adapt to changing realities.
Failing to address market changes and your personal situation could lead you to the poorhouse during retirement.
15. Spending too much on credit cards
Credit cards are not necessarily evil. If you use one of the top rewards credit cards responsibly and pay off the balance every month, you can even come out ahead financially by paying with plastic.
However, it’s just as easy to overspend and fall deep into credit card debt. If you are on a fixed income in retirement, it can be especially difficult to dig out of the debt hole.
Bottom line
As you prepare for retirement , you probably hope your golden years will be exciting. With the right planning, that vision can become a reality.
Just remember that you will need to adjust your lifestyle and spending habits when you switch to a fixed income. Failing to prepare for that reality can lead you straight to the poor house.
Money tips that can work for everyone
No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.
Focus on paying off your debt . Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.
Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.
Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).
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