The 5 Biggest Retirement Mistakes to Avoid

Relying solely on Social Security can lead to major sacrifices in retirement. In 2018, 41.8 million retired workers received an average monthly retirement benefit of $1,404. This was about 21% of couples and 43% of singles, the check represents 90% or more of their household income, leaving them on the brink of poverty for the rest of their lives.

For retirees still carrying credit card debt, mortgages, or car payments, $1,400 per month is not enough. Avoiding common retirement mistakes can prevent these statistics from becoming your reality.

  1. Relocating Without Testing the Waters

    The Problem

    Many seniors retire and immediately move to a new location. You may dislike the cold temperatures or high cost of living in your current city. Whether you move to a warmer climate or cheaper destination, relocating uses up valuable resources. If you move and hate your new living situation, you will incur even more costs to move again.

    An area may be a perfect vacation spot, but doesn’t suit you for year-round living. For instance, warmer climates can become uncomfortably hot during the summer months or have unbearable weather during the rainy season. Many times, a dream retirement destination can turn into a miserable existence. Other common challenges include a slower pace than you wanted, no friends or family nearby, and boredom. 

    The Solution

    Test the area before you relocate.

    Before finalizing a retirement move, spend time in your desired location. Travel to the destination at different times of the year and stay for an extended time. Get a feel for the lifestyle and the people, especially if you want to live in another country. Overseas locations require an adjustment to the local laws, language, and customs, which can be overwhelming for even the most laid-back individuals.

    It is also wise to rent initially. Invest in real estate, once you know you want to stay a while. Many retirees move and then decide they don’t like the location and move again.

  2. Rejecting the Stock Market

    The Problem

    As you approach retirement, it is tempting to move investment dollars into more conservative funds. Experience teaches that while you can make money in the stock market, it also fluctuates daily. A major downturn can wipe out savings, leaving you with an underfunded retirement.

    However, moving into conservative funds too soon can also leave you without the growth needed to keep up with inflation. Since 1926, investors have received an annual average return of nearly 10%. Bank accounts, CDs, and most bond funds do not come close to earning at this level.

    The Solution

    Redirect one to five years’ worth of funds into conservative vehicles, such as money market funds or CDs. Then adjust your remaining portfolio risk between mid and long-term investments. You could spend 30 years in retirement, which leaves plenty of room for both growth and recovery.

  3. Over Decluttering

    The Problem

    You often remain in the same home for over a decade and collect a lot of unused and unwanted items in the process. You may store the belongings of adult children, hobbies long-forgotten, and unused things filling the back of your closet and garage.

    Retirement is an opportunity to de-clutter and rid yourself of too much stuff. Doing so will make it easier to downsize, move into a retirement community, and avoid passing unwanted items to heirs. However, there are many items that you should not discard.

    The Solution

    Before throwing away business or personal documents, consult with your family lawyer or accountant. There are records you should keep for a certain number of years, and some you should keep indefinitely.

    Depending on your profession, there may be papers that have certain information which you must maintain, even after retirement. Common professions with document storage laws include accountants, dentists, doctors, and lawyers. The IRS can also initiate an audit for up to three years after filing a tax return. Documentation involving capital improvement on your home, stocks, funds, and contributions to retirement accounts are all records to keep because they help determine the cost basis for tax purposes.

    Before discarding antiques, which could include old collections, heirlooms, or furniture, consult with an appraiser or online source to establish an estimated value. You may find you can sell the item rather than discarding or donating it.

  4. Overlooking Long-Term Care

    The Problem

    Everyone hopes to have good health well into retirement, but over time it could decline. Family members may not be able to care for you full-time. Experts estimate that up to 70% of seniors will require some form of long-term care. With in-home care averaging $3,800 per month, and nursing home costs reaching nearly $8,000 per month, or $96,000 per year.

    Even if you have saved and prepared for retirement, your funds can quickly erode due to the high cost of care. Unfortunately, Medicare does not cover most of the costs related to long-term care.

    The Solution

    Purchase long-term care insurance. Policy premiums depend on your age and current health. If you buy a policy while you are still healthy, you can find a policy that can meet your needs within a budget you can afford. For example, a 55-year-old male could buy a policy for less than $200 a month. If you wait until 65 to purchase long-term care insurance, the premium could double.

  5. Failing to Create A Will and Power-of-Attorney

    The Problem

    No one likes to think about death. However, preparing while you are mentally able is an important step to take for your future well-being. A power-of-attorney assigns someone else to take care of your finances, should you become unable. Without it, an unexpected illness could leave family members without access to critical funds to pay for your care.

    A will creates a directive for your assets. Without it, the state laws decide which heirs receive which assets. Even if you only have a car and a bank account, it is important to determine how you want assets distributed upon your passing, and who will be in charge of your estate.

    Failure to create a will and power-of-attorney can leave your affairs in the hands of the courts, create financial hardship for your family, and potentially distribute assets contrary to your desires.

    The Solution

    Create a will and power-of-attorney and update them as changes occur. You can also title assets to bypass the will, providing heirs with access to money faster. For example, you can earmark retirement accounts and life insurance proceeds to a beneficiary, rather than distributing those assets through the will.