If you’re getting ready to retire, you’re probably looking forward to having more time to relax and pursue your hobbies. While retirement can be a simple and easy transition for some, executing a well-planned retirement strategy often requires careful budgeting and financial calculations. Some seniors find that their savings will be enough to carry them through, while others decide to get a Home Equity Conversion Mortgage, downsize, or make other arrangements to secure a financially sound retirement. No matter how you decide to retire, it’s important that you remain vigilant about avoiding common financial mistakes. To learn how you might be able to avoid financial problems in retirement, read on.
Mistake #1: Excess Celebration
Many retirees find themselves spending more in the earlier years of retirement. While it may be tempting to celebrate your freedom and splurge a little, it’s important to keep the bigger picture in mind. Plenty of retirees start their retirement by doing things they wish they’d always had more time to do – like traveling, golfing, or fixing up the house. Once they look back at their budgets, though, they sometimes regret it. To mitigate this problem, make a budget based on long-term planning and stick to it religiously. It’s okay to allocate a portion of your budget toward vacations or other luxuries if you’d like, but only if you make sure to consider those expenses when planning the rest of your day-to-day living requirements. If your new hobbies are costing you more money over time, you can find ways to balance things out. Examples include eating out less and shopping with coupons. No matter what you do, remember that balance is the ultimate goal when living on a budget.
Mistake #2: Mismanaging Transportation Costs
Let’s say that you and your spouse have two (or even three) cars. Maybe one of them is bigger and better suited for large family excursions whereas the other gets better mileage for daily use. This arrangement might work well while you’re working, but if you have a vehicle that you don’t really need as often in retirement, it may pay off to simply get rid of it. By selling it, giving it to a grandchild or other relative, or donating it to charity and using the tax write-off, you’ll be able to put the extra money into savings. Without having to spend money on gas, insurance, repair costs, and general maintenance expenses, you’ll be surprised how much more money you might be saving each year. Furthermore, by using public transportation whenever possible or simply walking/biking for fitness benefits, you’ll be able to save even more.
Mistake #3: Moving Mishaps
Many people choose to relocate based on a few key factors like low real estate costs, low taxes, etc. However, keep in mind that these standout issues might not be the most important elements in your bottom line. Some retirees end up making an expensive move but later discover that they have to move again after a couple of years for new reasons. If you sell your home and downsize but then discover that higher property taxes are eating up your savings, you’ll be in a rough spot. And it’s not just high property taxes that can cause this effect. Moving could also bring with it more expensive food and transportation costs or other unseen factors. Furthermore, not all homes are suited for long-term retirement living. A secluded mountain cabin may be cozy for a couple at first, but once one spouse passes away, the location could become a source of loneliness. On top of that, moving to a secluded area could make access to major airports and medical centers more difficult – and therefore more expensive. To prevent these issues, do your best to research the potential area as carefully as possible. Look for potential hidden costs. Talk to friends or other homeowners nearby. What do they wish they’d done differently when moving?
Mistake #4: Underestimating Future Needs
If there’s any universal problem in budgeting and financial planning, it would be the tendency to underestimate expenses. In fact, when it comes to retirement planning in particular, many seniors tend to underestimate their future cost of living. Rather than simply assuming you’ll spend a bit less than you normally would, try to actively anticipate the kinds of things you’ll be spending money on more often during retirement. While it may be easy to predict how much you’ll need to spend on groceries and daily commodities, it might be a bit more difficult to expect sudden, large costs. Generally speaking, unexpected medical problems are among the most common bank-breaking problems that retirees face. While Medicare might make it easier to manage such costs, it often won’t cover the entire amount. No matter how you plan for retirement or what kind of budget you choose to implement, remember to do everything in your power to predict your future needs.