The Top 5 Mistakes Investors Make When Approaching Retirement

June 28, 2024  |  Doug Frawley, CFP®, CPA

Approaching retirement is an exciting yet critical phase of one’s financial journey.

It’s the time when careful planning and prudent decision-making can significantly impact the quality of your retirement years. However, many investors make mistakes that can jeopardize their financial security. Here are the top five mistakes you should avoid as you near retirement:

1. Underestimating Healthcare Costs

One of the most common mistakes is underestimating the rising healthcare costs.

Many retirees are caught off guard by the expenses that Medicare doesn’t cover, such as dental, vision, and hearing care.

Additionally, long-term care costs can be substantial.

Tip: Consider purchasing a supplemental insurance policy and factor in long-term care insurance to cover potential gaps. Regularly review your healthcare plan to ensure it meets your needs.

2. Retiring with Too Much Debt

Entering retirement with a significant amount of debt can put a strain on your finances.

Mortgages, credit card debt, and other loans can erode your savings faster than anticipated.

Tip: Focus on reducing or eliminating debt before you retire. This might mean prioritizing debt repayment over other financial goals in the years leading up to retirement. A debt-free retirement allows you to allocate your income and savings toward enjoying your golden years.

3. Neglecting to Adjust Spending Habits

Retirement often means living on a fixed income, and many individuals fail to adjust their spending habits accordingly.

Continuing pre-retirement spending patterns can quickly deplete your savings.

Tip: Create a detailed retirement budget that accounts for all your expenses. Track your spending to ensure it aligns with your budget and make adjustments as necessary.

4. Starting Social Security Too Early

Claiming Social Security benefits at the earliest possible age (62) can reduce your monthly benefits significantly.

Many make the mistake of starting Social Security too early without considering the long-term impact.

Tip: Evaluate your financial situation and health status before deciding when to start Social Security. Delaying benefits until age 70 can increase your monthly payments substantially.

5. Overlooking Inflation’s Impact

Inflation erodes the purchasing power of your money over time. Many retirees fail to account for inflation in their retirement planning, leading to a shortfall in funds as living costs rise.

Additionally, it’s crucial to recognize that your time horizon doesn’t abruptly end at retirement; you will likely need your funds to last at least a couple of decades or longer.

Tip: Ensure your investment strategy includes growth-oriented assets that can outpace inflation. Regularly review and adjust your retirement plan to reflect changes in inflation rates. Plan for a time horizon that extends well beyond the initial retirement date to ensure your savings can support you throughout your retirement years.

Conclusion

Avoiding these common mistakes can help you secure a financially stable and comfortable retirement.

It’s crucial to plan ahead, seek professional advice, and regularly review your financial strategies.

Remember, a well-thought-out retirement plan is key to enjoying your golden years with peace of mind.

As a Certified Financial Planner® I can provide you with a comprehensive financial plan and personalized guidance to navigate these challenges and optimize your retirement strategy.

Feel free to reach out to discuss your unique needs and goals.

Until next time,

If you’ve been considering hiring an advisor to help guide you through the ever-changing financial landscape, take your first step today by scheduling a free consultation with one of our experienced team members. There’s no risk in exploring if we’re the right fit for your financial goals. Contact us now.

Doug Frawley, CFP®, CPA

As a Senior Financial Advisor at Avalon Doug Frawley is committed to fostering enduring relationships with clients through consistent communication, insightful education on market dynamics, and unparalleled service. Doug has been a fiduciary for over a decade- always putting his clients' best interests first. In fact, he started his journey as a financial professional as a fiduciary from day one as a Certified Public Accountant.
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