Updated: Dec 13, 2018
by William Sabin, CPA
Below are 10 retirement mistakes to avoid if you want to continue to experience financial freedom.
Keeping a house that is too big. While it was great and maybe necessary when the kids lived at home. It might be good to consider downsizing. There are several advantages to live in a small house. It's less costly to heat and cool. Taxes are most likely less. It is easier to maintain.
Overestimating your portfolio return. The tendency for people running portfolio models is that all is great and will continue to be even better. It's prudent to plan for a 3-4% yearly return when projecting out over the longer term as a worst case scenario.
Trying to time the market. This is a tough one. We generally hear about missing the best trading days and how much money you could have gained. However, not much is discussed about what your portfolio would look like if you missed the worst days. As can be seen below, this is the allure of market timing.
Soloing your retirement planning. This is also a tough one, especially for people that have a penchant for investing like many Seeking Alpha readers. However, it might be helpful to hire an advisor for at least some of your portfolio to help avoid many of the mistakes listed here such as market timing and lack of diversification.
Putting all your eggs in one basket. Diversification is key and an essential part of retirement planning. One way to manage volatility is with portfolio diversification.
Forgetting to rebalance your portfolio. It's important to review your portfolio to ensure that you are following your asset allocation strategy. As certain asset classes do well (e.g. equities), it is possible for your portfolio to become unbalanced thus bringing more risk to your portfolio. It is good to at least review your allocations on a regular basis to see if you should make adjustments. Of course, most adjustments will trigger a tax effect.
Having too much cash. Let your money work. Having too much in a 'safe' money market can really drag your overall portfolio returns lower.
Not understanding when to take Social Security. People are passionate on if one should take social security at 62 or delay the payments. Discussions of the best time to take social security are beyond the scope of this article. However, it is important to consider such factors as your financial situation, your health, and how long you're likely to live.
Underestimating medical expenses/overestimating Medicare benefits. Ensure that you estimated expenses in retirement includes money to supplement Medicare. Medicare doesn't cover all health-related costs. Consider and plan for the cost of long-term and assisted living care.
Going on a spending spree. Many retirees spend more the first few years of retirement on travel and other purchases. Maybe it is the jubilation of not having to get up and go to work each day. Maybe it's a coping tool. It's best to make a budget and stick to it to avoid spending too fast.