Posted by Fred Lake

Six Biggest Money Mistakes Most Retirees Make

Six Biggest Money Mistakes Most Retirees Make

As a retirement period approach, many people are usually carried away with plans for their new world. They consider many things they can do and the excitement of not being tied to a job. What many people, however, do not realize is that they need to prepare for a stress-free retirement.

A lot of retirees are guilty of not planning for their retirement period. In addition to this, many are prone to mistakes that do put them in financial perils. According to many financial advisors, you need a solid plan to avoid common financial mistakes that many retirees make. 

We will discuss some of the mistakes in here, and we hope it can guide you into having a stress free retirement.

Not Tracking Your Spending 

To have a stress free retirement, you need an in-depth knowledge of your cash flow. This is important to help you plan. Knowing the exact amount of money that can help you survive in a month will be of great help in planning your budget. Many new retirees, however, are guilty of not tracking their cash flow. This ends up affecting their budget.

It could be uncomfortable to budget $6,000 per month and end up spending $8,000. Knowledge of your cash flow, income, and expenditure will help you have a reliable figure to work with.

Underestimating Your IRAs

That you have an active retirement plan does not mean you cannot fund your IRA's. It is a factor in your income. You need to get acquainted with the IRA rules to prevent cheating yourself. Many people could be qualified for an IRA contribution without knowing it.

I bet many people also do not know that if they have a non-working spouse, they can have a contribution on their behalf.

Rushing Your Social Security Collection 

Even if you are already 62 years old, it might not necessarily make sense to collect your social security benefits. While collecting it early could make sense for some people, many people surcharge themselves by taking the reduced payout.  

Even though there is no specific age recommended in collecting your social security benefits, many people do not see any sense in waiting. Yet, some disadvantages come with claiming your benefits early. In addition to reducing your overall benefit, you stand the risk of penalty should your benefits be more than your spouse's.

Withdrawing Your Income Without a Plan 

Withdrawing social security benefits without withdrawing from other retirement account and your IRA could be costly. This is because should you use your retirement money in a wrong endeavor, you will be subjected to a yearly tax levy. Yet if you had strategized, you could have come up with a plan that will help you not to remit thousands of dollars as tax. 

This is common to people whose primary retirement income comes from IRA funding and social security benefits. Make sure you talk to a retirement planner as they could help you device huge retirement income that will not be so heavily taxed.

No Knowledge of Your required Minimum Distributions 

The idea that retirees can only withdraw a certain amount from their IRA is strange to many. Yet withdrawing above the limit could result in colossal penalty tax.

This is because once you are 70 ½ years old, you need to take a distribution if you have money in the formal retirement plans like 403(b)s, or traditional IRAs. You cannot withdraw what you wish as there is a formula for calculating this. This formula depends on your age and account balance as of the last day of the previous year.

The good news is that as you grow older, the amount you can withdraw increases. Taking out more than the specified amount could warrant a penalty. 

Not Downsizing 

One of the mistakes many retirees make is staying in their large house long after all the kids have gone, and they have retired. This does not make sense because a large house is a financial burden. There are the running cost and maintenance costs which you need to foot.

When you downsize, however, your financial responsibility reduces. This removes the need to tie yourself to unnecessary financial burden as you can channel the money to other reasonable endeavors. 

Conclusion 

Knowledge of these mistakes can help you have a stress-free retirement. It will go a long way in preparing you for what lies ahead when you retire. 

Fred Lake
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