Because we get to work with and talk with dozens of people who retire each year, we get to see those who do it well, and then we also get to see those who make some mistakes. In this post, we’re going to look at some of the most common mistakes people make in retirement.
It’s definitely okay if moving is part of your retirement plan. But here are two couples who went about it in different ways.
The first couple knew the town they wanted to move to; it was the hometown where they both grew up. After they retired, they sold their Chicago house and bought a house in their hometown. It was more rural, less expensive, and they still had some friends there. The next year, they made some changes to their new house and got it updated just the way they wanted. But after six months or so, they realized they didn’t love the place they were. It wasn’t the same. The problem wasn’t the house; the house was fine because they had made it the way they wanted. But they didn’t have the same feelings as they remembered from when they used to live there. So, they ended up selling that house and moving to a new area. Now they’ve been in the new location for over 10 years and things are good.
The second couple sold their house and relocated to a new state, California, about 10 years ago. When they arrived, rather than buy, they rented and tested the waters to make sure it was right for them. They found out that they didn’t have sense of community in the first year. It was hard to make new friends where they were and it just didn’t feel right. After a year, they tried a new location. They rented again and quickly fell in love with the place because of some new social connections they made. That’s when they bought a home in that location. They’ve lived there for about nine years and are living out their retirement plan.
Think about your options. If you’re relocating, maybe it’s worth paying for flexibility for a year or two, just to make sure you’ve found the right place. There’s nothing wrong with renting. Some people think it’s a waste of money, but I think it’s worth it for a big move.
It sounds strange, but not spending money or over-saving is a common thing that we see. This just means that many retirees have the ability to spend more money or give more away in retirement, but they’re overly frugal. They are still worried about running out of money or they want to save more to leave to their heirs. The reason I believe this is, is because they don’t have a plan or they haven’t looked at the various scenarios that could play out. Once you’re able to create an income plan and see the impact of the money decisions on your future, it becomes a lot easier to use your money the way you want to. It also gives you more confidence in the future as well.
Many retirees don’t accurately predict or project what taxes are going to be in retirement. Or, they might plan out the next one to three years, which is good, but they don’t look at the next 10-plus years. I know it’s impossible to predict what tax rates are going to be and things like that, but at least look with reasonable growth rates at the required minimum distribution. This is a good idea because you might be in a postion where you wouldn’t take the distribution amount required each year by the government if you weren’t forced to. If that’s the case, there are tax-planning strategies you can use in retirement to minimize how much tax you pay over your lifetime.
Doing tax projections each year is a good idea and it’s a key part of the tax planning system here at Streamline as well.
Another common mistake that we see in retirement is when people use their new free time to take up investment study. People think now that they have extra time, they’ll be able to become more of an expert in investing and want to take the reins back. This can be a mistake because there are different levels of retirement planning. Level one is really just using rules of thumb to plan retirement. And it is possible to have a successful retirement by using these rules. But there are also things you can do to make it even better with expert guidance. Having someone who has a lot of experience and can run multiple scenarios and help make decisions is valuable as well. We’ve seen that it actually brings more stress to retirement to try and manage all the investments on their own.
Now, this isn’t everybody. You might love investing and it’s something that lights you up. You may have a passion for it and it doesn’t cause you stress. If so, then continue to do it! But there are many who are hearing a lot of conflicting views and don’t know what decision to make because of all the different points they’re pulling from YouTube or other places when attempting to do it themselves. When you get to retirement, you’ve probably got the most money you’ve ever had. And the chances of making a costly mistake are a lot higher when you’re dealing with $2 or $3 million.
This leads directly to the next mistake we see.
It does make sense to learn from those who have gone before you. You might have friends who are a few years ahead of you in retirement, You’re able to glean wisdom from them and maybe learn from the mistakes that they made so you can avoid them. But when it comes to details of investment strategy or income strategy, don’t put too much weight on someone else’s experience. They’re not you and they have different financial needs and different values and risk tolerance.
One guy I talked to recently said his friend who is 10 years older than he is put money into a 60/40 portfolio at Vanguard. It’s a two or three fund solution and it worked out for his friend, so he wanted to try it too. But when you look at the different asset classes that are available, this strategy would really be investing in just a small fraction of the available investing world. This strategy might not leave him prepared for all the economic seasons we could go through, so it wasn’t really a wise solution for him.
In order to make yours the best retirement possible, you need to think about the non-financial side of things as well. Think through what will give you purpose, excitement, and joy in retirement. This is important because there’s a stage after the honeymoon phase of retirement where a lot of people experience disenchantment and ask, is this really all that there is?
To help you avoid that stage and live a life you love, I have a worksheet in Module One of the DIY Retirement Plan. Click here to access it.
As you get closer to your retirement date, the feeling of wanting security and safety gets stronger. This tends to make people want to get more and more conservative with the assets they’re holding in retirement accounts. But this could actually lead to harming the retirement plan, especially during periods of higher-than-expected inflation seasons.
Be aware of the feelings and the emotions that come with retirement and don’t let them negatively affect your plan.
Be sure you’re aligning with your partner on how you want to spend your time and money in retirement. You may have different perspectives around money and have different ideas about what you want to do. This is why defining and discussing your money values is so important. Because when our values become clear, our financial decisions actually become easier.
For example, if I value being outside, nature, and travel, then I may spend several thousand dollars on an Alaskan vacation with my family. Whereas my neighbor might have values aligned with local community and relationships. He’d rather spend money on entertaining friends at home or going to restaurants, things like that. Both are good uses of money, but one is better for me and one is better for him. It’s the same way with your spouse or partner. Thinking through these things together is very important before you get to actual retirement. And there are exercises in the DIY Retirement Plan (linked again here) if you’re interested in those.