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Top Financial Mistakes Retirees Make in the First 10 Years

Top Financial Mistakes Retirees Make in the First 10 Years

By Frank Legan

Congratulations! You’ve reached retirement—your time to relax and pursue your passions has finally arrived. But before you ditch your briefcase for a beach chair, it’s essential to have solid financial planning strategies in place. That means the first 10 years of retirement is a critical period for avoiding the common financial mistakes retirees make. 

In this article, I discuss the most common mistakes I see and how to avoid them. 

Claiming Social Security Too Early

Don’t assume that 62 is the ideal age to begin receiving Social Security (or full retirement age, for that matter). For instance, if you wait to start receiving Social Security until age 70, you could receive a significant increase if your full retirement age is 66. This means that if you wait an additional four years to receive your monthly payment, you could end up receiving quite a bit more.

Take into account your retirement date, your current health, and the size of your nest fund when determining when to begin receiving Social Security. Determining the right time to claim your payments is a science. Speak with a reputable financial advisor who can assist you with the calculations if you need help.

Impulsive Spending

Too many people start their new chapter in life by pursuing all the things they didn’t get to do while they were working. The pitfall here is underestimating the amount of money they’ll spend. With newfound extra time, it’s so easy to make a lot of little purchases that add up to a large amount of money over time.

To dodge this common mistake, create a realistic budget for yourself and stick to it. You can absolutely include extras like a long-awaited vacation or new hobby supplies, but make sure you understand how the expense can affect your nest egg before moving forward with it.

Overreacting to Stock Market Volatility

Especially in the first 10 years, most retirees play it safe in the stock market by investing conservatively and conserving their nest egg as much as possible. But don’t play it too safe. Invest in at least a few growth assets.

Think about it. Your retirement could last anywhere from 20 to 30 years. My suggestion here is to not be overly cautious about investing too conservatively just to avoid short-term volatility. 

Underestimating Healthcare and Long-Term Care Costs

After age 65, retirees are eligible for Medicare, but sometimes this is insufficient to meet their ongoing medical needs. For instance, did you know that Medicare does not cover long-term care, dental, basic vision, or over-the-counter medications?

Here are some tips to keep you from underestimating how much you’ll need to spend on healthcare costs:

  • Carefully monitor your spending to verify you have a financial buffer in place that can shield you when you incur larger medical bills as you age.
  • When you select your retirement health insurance, fully understand all your Medicare options and supplements.  
  • Completely research your long-term care coverage options. It might not seem prudent during the first 10 years of retirement, but having a plan in place for long-term care is a smart strategy. The earlier you schedule long-term care coverage, the better. As you age, prices can go up.

Misjudging Taxes on Retirement Income

The last financial mistake retirees make during their first 10 years of retirement is miscalculating how much their retirement income tax bill is. Because retirement account withdrawals are all taxed differently, your smartest move is to have a strategic withdrawal plan in place. Otherwise, you could end up with a hefty tax bill you weren’t anticipating.

A $50K Roth IRA payout, for example, is taxed very differently from the same distribution from a traditional IRA. So if you don’t plan a withdrawal strategy, you risk setting off an avalanche of rising Medicare premiums, Social Security taxes, investment surtaxes, and capital gains taxes.  Your smartest move here is to speak with a financial planner or tax advisor who can look at your tax bracket, retirement accounts, and Social Security to help you withdraw money in the most tax-efficient way. 

We’re Here to Help

Even though nobody can avoid making every single mistake discussed in this article, you should still actively plan for the least difficult route to a happy retirement. Our team at Cedar Brook Group can help you develop a spending plan and tax-advantaged distribution strategy that keeps more money in your pocket throughout your entire golden years.

You can contact us by calling 440-683-9213, emailing flegan@cedarbrookfinancial.com, or scheduling a complimentary introductory call online!

About Frank

Frank Legan is Partner, Financial Advisor, and member of the Forward Look Committee at Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, closely held business owners, artists, families, and retirees. He focuses on lifetime income strategies, investment advice, and estate planning services. He also works with businesses to develop strategic and succession planning strategies. Frank has a Bachelor of Arts in Political Science from the University of Dayton, as well as a Master of Public Administration focused on municipal management from Cleveland State University. 

Prior to joining Cedar Brook Group, Frank was a financial advisor in the private client group at Merrill Lynch and with NatCity/PNC Investments. Frank is active in his community, serving on various councils, boards, and committees. Frank serves as Chairman Emeritus of the Board of Directors for Catholic Charities Diocese of Cleveland. When he’s not working, you can find Frank spending time with his wife, Laura, their daughter, Reese, and their beloved collie, Charlie. Frank and his family are volunteers at St. Francis of Assisi church in Gates Mills. To learn more about Frank, connect with him on LinkedIn.

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About Frank Legan

frank-legan-bio

Frank Legan is a Cleveland-based author, a partner and financial advisor at The Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, business owners, artists, families and retirees. He focuses on lifetime income planning strategies, investment advice, and estate planning services. He also works with businesses to develop strategic and succession planning strategies.

Frank holds a B.A. from the University of Dayton and a master’s degree from Cleveland State University.

Frank has been active in his community as he served as a Council Representative at Large for the City of Highland Heights, as well as Vice President and Secretary for the Hillcrest Council of Councils. He currently serves as a Board Member and Emeritus Chairman for Catholic Charities Diocese of Cleveland.

Frank lives in Gates Mills with his wife Laura, daughter Reese and their collie Charlie.

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