Stepping into retirement is a lifestyle-changer for U.S. career professionals. Make that transition more seamless by avoiding these financial land mines.
Life really isn’t fair.
You’d think that by retirement age, the days (or more likely nights) of indulging in life regrets would wither away, along with other annoyances like smartphone alarm clocks and 4 p.m. Zoom meetings.
When it comes to financial decisions made in retirement, that really isn’t the case.
The fact is, money-related regrets in retirement are real, and learning from them can help steer retirees to a more realistic, and perhaps financially frugal course through their golden years.
“For many Americans, retirement is one of the biggest moments in their life and it can be a scary one, because for most, it’s the first time they’re going through this process,” said Gerald Grant III, a financial planner at Equitable Advisors. “Unfortunately, many retirees don’t take the time to do the proper planning heading into retirement, which can ultimately lead to some regrets down the road.”
Financial Miscues Where Retirees Would Appreciate a Do Over
Here’s a close look at some financial decisions that retirees wish they had back, and what future retirees can learn from those experiences.
Lack of better financial planning. Ask a seasoned money manager, and you’ll hear a lot about retirees regretting not better planning during their working years.
“The majority of these retirees regret what they could have done differently, especially to build a better cash flow during retirement,” said Greg Heller, founder at HCR Wealth Advisors, a financial planning firm. “No one retires wishing they had less. Getting used to the lack of cash flow they had in their working years is difficult for many retirees.”
Not factoring in a long lifespan. Another downbeat issue for retirees is the timeline aspect of their financial planning. In short, the timeline may be off by a decade or two.
“In years past, financial plans were generated assuming people would live into their 70’s or 80’s,” Heller noted. “Nowadays we’re creating financial plans for people who may live to be 100.”
Taxes and inflation. Another financial issue most retirees overlook is their retirement funds are taxable.
“For example, the $1 million you have in your 401K/IRA account isn’t quite the same amount once you pay taxes on it, and that number will vary based on your expenses and how much income you need to draw,” Grant said. “Also, as time goes on, inflation can impact the buying power of your investments. After all, $100 today isn’t the same as $100 two decades from now.”
Too much for toys. Many retirees also wish they hadn’t bought big-ticket items outside of their means.
“When people retire and tap into some of their larger investment accounts oftentimes obtaining access to that large sum of money can cause people to make some bad decisions,” Grant noted. “When you factor in things like inflation and taxes, that large sum of retirement funds is diminished when you additional expenses like luxury cars or an expensive property.”
New cars, new homes, and other big expenses can have a significant impact on your monthly cash flow as well as the longevity of your retirement funds.
“This leads to regrets down the road as big-ticket items can really put a person in a financial bind,” Grant added. “So much so, a retiree may have to go back to work and limit the things they really want to do in retirement because you don’t have the means, such as taking trips, eating out more, or spoiling the grandchildren.”
Climbing Back After a Retirement Spending Regret
Unfortunately, there are no mulligans in retirement with bad money decisions.
There are, however, some action steps to take to mitigate the current damage and ensure the miscue never happens again.
“The first way is to meet with a financial planner to develop a comprehensive financial plan, even in retirement,” Grant advised. “This will allow you to get a detailed analysis of your financial picture. Really looking at your expenses and comparing them to your income, assets, and other variables will allow you to have a clearer picture of the future.”
It’s also a good idea to break down your expenses into mandatory versus discretionary (i.e., excess) spending.
“This allows you to maintain your quality of life and know what financial adjustments need to be made going forward,” Grant added. “Another way to combat a money mistake is finding additional sources of income to help alleviate some of the underestimated or excess expenses.”
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