5 financial mistakes to avoid in retirement

Key Points

  • Retirement is a journey as you transition from saving to spending.
  • Avoid five common mistakes that can set you back: Overspending, forgetting about inflation, underestimating medical expenses, not having a Social Security strategy and retiring too soon.
  • Work with your advisor for personalized advice to stay on track and enjoy your retirement.

You can be financially confident throughout retirement by making sure you are on track with your goals — and avoiding five common, easy-to-make mistakes that could set you back.

Your biggest ally is your advisor, who can help you navigate decisions at every stage. Use the following list to identify where you may benefit from help.

1. Overspending

In the early days of retirement, the freedom to travel, eat out and try hobbies can be exhilarating — and expensive. To enjoy the lifestyle you’ve worked so hard to earn over decades of saving, investing, and sacrificing, work with your advisor to develop a strategy to withdraw your assets effectively.

2. Forgetting about inflation

Given the need for your income to last for the rest of your life, it might be tempting to lean more toward investments that preserve rather than grow your savings. However, everyone needs to factor in inflation. Almost everything — from big-ticket items like houses to small stuff like a cup of coffee — goes up in price over time. To account for inflation, you need to build in the potential for growth in your investments; your advisor can help you with this. To prepare for your meeting with your advisor, you could run some numbers with our inflation calculator.

3. Underestimating medical expenses

Retirement health care expenses are projected to rise at an average annual rate of 4.22%1 — and as you age, you might have more frequent or serious health care needs. In fact, the Employee Benefit Research Institute estimates that for a 90% chance of having enough to cover health care expenses in retirement, a couple with median prescription drug expenses needs $296,000 in savings.2

Your advisor can help you evaluate solutions. For example, you may be able to navigate the growing cost of health care and pay for whatever Medicare does not cover by considering supplemental coverage, including:

  • Long-term care insurance: Depending on your age and health, you may still be eligible to purchase coverage. While the premium is likely to be higher if you’re older, it could be a relative bargain compared with actual care costs.
  • A Medigap policy to supplement Medicare Part B: Medigap policies offer certain basic core benefits, and all but the most basic policies offer various combinations of additional benefits designed to cover what Medicare does not. Although not all Medigap plans are available in every state, you may be able to find a plan that meets your needs and your budget.

4. Not having a Social Security strategy

Social Security is a source of income you can’t outlive, so deciding when to file for it is a critical step in retirement planning. Although you can start collecting benefits at age 62, waiting can pay off because your overall benefit increases until reaching the maximum amount at age 70. Your advisor can help you time your Social Security benefits as part of an overall cash-flow strategy.

5. Retiring too soon

The age you retire impacts your income and lifestyle. The sooner you retire, the more expensive it could be. For example:

  • If you have a pension, early retirement may result in lower monthly payments due to fewer years accruing benefits.
  • Over a long retirement, even 3% inflation can cut your purchasing power almost in half over 20 years.
  • With fewer employers offering health benefits for retirees, you may have to pay for health care until becoming eligible for Medicare at age 65.

Your advisor can provide you with personalized financial advice for a retirement age based on your unique goals and needs. In addition, you could consider that some employers offer an alternative to full retirement, such as phased retirement over several years, in which you may be able to receive retirement benefits before the typical retirement age of 65 while you continue to work.

Stay in touch

Retirement is a journey as you transition from saving to spending. Contact your financial advisor for personalized advice to achieve your goals and live the retirement lifestyle you envision.

Watch our brief video for more insights about deciding when to retire and steps to feel more secure about your retirement income.