When you’re working, saving for retirement feels like the hard part. But once you’re retired, the challenge becomes spending in a disciplined fashion and according to a well-thought-out plan.
“Managing retirement funds requires a strategic approach to balance present enjoyment and future needs,” said Marty Burbank, an estate planning and elder law attorney and the founder of OC Elder Law in Orange County, California.
If you spend down your savings without a strategy, you risk running out of money.
“We emphasize asset protection and sustainable withdrawal strategies to prevent such scenarios,” said Burbank, who sits on several prominent boards and has been recognized for his work helping veterans and retirees plan for their financial futures.
“These involve setting up trusts and planning estates that align with a client’s long-term financial well-being, ensuring they don’t outlive their resources.”
GOBankingRates spoke with two financial planners who help clients develop strategies for making their money last — and both say it all starts with avoiding these retirement spending mistakes.
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Matthew Argyle is a chartered financial analyst (CFA), certified financial planner (CFP), enrolled agent and a lead retirement planner for Encore Retirement Planning in Utah.
His no. 1 spending mistake comes from retirees who try to overcompensate for their lack of savings by placing a desperate wager on one, last all-or-nothing hand. But Argyle knows that the first thing you should do when you realize you’re in a hole is stop digging.
“Betting big on a stock to try and make up for lost time is a great way to torpedo your retirement,” he warned.
Burbank agreed.
“I’ve seen many retirees make the mistake of spending their savings too quickly on high-risk investments in a bid to generate high returns,” he said. “This often results in significant financial losses rather than the intended growth of their nest egg.”
Since withdrawals from pre-tax retirement savings accounts count toward your taxable income, the worst kind of spending is any that doesn’t consider how it might impact your standing with the IRS.
“I see retirees throw themselves into a tailspin after they ignore tax implications,” said Argyle. “Common mistakes I see are taking too much from an IRA, cashing in too many savings bonds or selling a property.
“Retirees can be haunted by delayed tax consequences, too. For example, Medicare’s dreaded Income-Related Monthly Adjustment Amount (IRMAA) can double or triple your Medicare premium — but this happens two years later.”
Annuities are insurance products that many retirees rely on to generate income that has the potential to last for life. They can be valuable arrows in the retirement quiver — but don’t spend money on one that will set you back in the long run.
“Buying an annuity with a high initial payout can cause permanent damage,” said Argyle. “Payments aren’t usually indexed to inflation. Take this into account, so you don’t end up in trouble when you’re least likely able to earn more — in your 80s.”
When adult children are conditioned to turn to their parents for financial help when money gets tight, that behavior is unlikely to stop when their parents retire. However, few retirees can simultaneously support themselves and their adult children while on a fixed income — and most shouldn’t try.
“You love them,” said Argyle. “They ask for your help. How can you say no? Consider the long-term implications of those gifts. Are you really helping them or enabling poor behavior?
“An emotional decision today can hurt you later. One of the worst forms of support I see is the ‘loan’ that never gets paid back. Encourage financial independence and set clear boundaries.”
If you’ve been planning your retirement for a long while, you’re undoubtedly eager to start living out your dreams. That’s natural, but a “you only live once” mindset is for the young — don’t let that excitement trigger reckless spending that you won’t have the income to make up for later.
“A common pitfall is overspending on luxury and travel early in retirement without a carefully structured budget,” said Burbank. “It’s essential to balance the desire to enjoy retirement with the need to ensure funds last throughout one’s later years.”
And underestimating the length of your retirement can lead to financial strain in later decades.
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