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5 financial mistakes to avoid in retirement

You deserve peace of mind in retirement, which could last 20+ years. Here are five common mistakes to avoid so you can stay on track toward your retirement goals.

Mistakes to avoid

1.  Overspending

Retirement often comes with the joys of more free time and flexibility — which may make it easier to overspend. And in the early retirement years, especially, your expenses can add up as you adjust to a new lifestyle, such as more events with grandkids, a home renovation, high-ticket hobbies or travel.

How to stay on track: Think about developing a budget for essential needs first, and a secondary one for lifestyle spending. You could adjust both as needed.

2.  Miscalculating inflation’s impact

When high inflation dominates the headlines (as it has recently), it’s important to understand the impact on your retirement income. To put it simply, inflation — even at lower levels — can erode your purchasing power over time. As such, it should be factored into your personalized income strategy to help your assets last longer in retirement.

How to stay on track: Your financial advisor can work with you to create a personalized strategy for investments and retirement income to help you maintain your purchasing power over time. For example, that might include allocating more to stocks with a history of dividend growth, if appropriate for your situation. Dividends are a cash return on your investment in a stock. Dividends are not guaranteed and can be impacted by taxes and inflation.

3.  Underestimating medical expenses

Medicare is a valuable program for many retirees, but it wasn’t designed to cover health care expenses in full. In some cases, premiums and copays for covered services may become significant. Medicare also does not cover the following:

  • Deductibles and copayments
  • Cost of care for dental, vision and hearing conditions
  • Long-term nursing-home care

How to stay on track: Your financial advisor can help you understand the financial aspects of retirement health care and recommend solutions that help you prepare for uncertainty. To learn more about Medicare, review our Understanding Medicare guide.

4.  Undervaluing Social Security benefits

Because Social Security income lasts your entire life, deciding when to file for it is key.

You can begin receiving Social Security as early as age 62 — but in doing so, your monthly benefits may be reduced for life. If you’re able to wait to collect benefits, it may be worth it in the long run.

However, everyone’s situation is unique — and waiting may or may not be the right choice for you. Your financial advisor can help you decide on an approach that considers the following variables:

  • Varying tax rates on Social Security income
  • Capital gains and IRA withdrawals
  • Health issues and life expectancy in your family history
  • Whether your current retirement accounts and additional sources of income (including Social Security or pensions) will cover your essential expenses before you reach full retirement age

How to stay on track: Work with your advisor to start planning your Social Security income strategy early – the general rule is five years ahead of your estimated retirement date.

5.  Retiring too soon

The age at which you retire impacts your income and lifestyle. If you choose to retire at a younger age, it could result in lower Social Security benefits due to lower lifetime earnings that factor into the calculation. Early retirement also requires you to have more assets to pay for essential and lifestyle expenses, account for inflation and self-fund your health care before you are eligible for Medicare (generally, at age 65).

How to stay on track: Your financial advisor can make personalized recommendations and review your portfolio to help support your desired retirement timeline and goals. Before that meeting, consider using our Retirement Planning calculator for a general assessment of how long your funds are expected to last in retirement.

Retirement planning checklist

These action items can help ease stress on yourself, your family or other beneficiaries. Learn more about how using a retirement planning checklist can help keep your organized.

Stay confident throughout retirement

Meeting regularly with your financial advisor to review your goals, progress and investments can help you stay on track and avoid these common mistakes. You also can check your accounts and progress anytime online, from any device.

Our advisors know that trust is a matter of work, not words.

Or, request an appointment online to speak with an advisor. 

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At Ameriprise, the financial advice we give each of our clients is personalized, based on your goals and no one else's. 

If you know someone who could benefit from a conversation, please refer me.

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Investing involves risk including the risk of loss of principal.

Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value. 

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consult your tax adviser or attorney regarding your specific situation.

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.