5 Money Mistakes to Avoid in Retirement

By Chris Duderstadt

January 25, 2024

5 Money Mistakes to Avoid in Retirement

Key Points – 5 Money Mistakes to Avoid in Retirement

  • Working with a Team of Financial Professionals to Avoid Costly Mistakes
  • Taking the Emotions Out of Investing
  • Do You Know How Much You’re Spending Each Month?
  • Mistakes Related to Taxes, Social Security, and Estate Planning
  • 4 Minutes to Read | 24 Minutes to Watch

Money Mistakes to Avoid in Retirement

Everyone makes mistakes. There’s no denying that. But there are so many mistakes that can be avoided, especially when it comes to protecting your wealth. That’s why it’s critical to work with a team of financial professionals to make sure that you don’t make any mistakes that can derail your plans for retirement. Let’s review five money mistakes that we see people make that need to be avoided in retirement.

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1. Letting Emotions Drive Your Investment Strategy

Whether it’s the upcoming election, the Russia-Ukraine and Israel-Hamas wars, or just the business cycle, the chances are good that we’ll see another stock market crash at some point in our future. While no one can predict precisely when and where the crash will show up, it’s a good idea to mentally prepare for these declines by stress testing your financial plan.

When they happen, it’s like a bad horror movie. It’s nighttime, and there’s a loud thunderstorm. The “victim” hears a sound in the basement as the power goes out. They grab a flashlight and slowly make their way down the stairs. Everyone knows what’s coming next, but the “victim” can’t help themselves.

Investor behavior is often like this during a market crash. The stock market begins to decline, and usually somewhere near the bottom, as things are at the height of scary, emotions get the best of the investor, and the investor sells their stocks, wanting hide in the house until the scary ghosts are gone. We see it time and time again.

Work on creating an emotion-free investment strategy focused on your goals and one that is not easily driven off-course by the headlines of the day. So, avoid letting emotions become one of your money mistakes and preparing for potential market crashes via stress testing. Of course, a market crash is just one example of something that can negatively impact your retirement. Download our Retirement Plan Checklist to see examples of other things to stress test for so you can gauge your retirement readiness.

Money Mistakes

Retirement Plan Checklist

2. Not Reviewing Your Spending Habits

We purposefully didn’t list this avoidable money mistake “Not Having a Budget” because as soon as many retirees see the dreaded six-letter “B”-word, they run for the hills.

While you may not necessarily need to account for every single penny of your income in retirement, it’s a good idea to have, at a minimum, an understanding of how much income you’ll need to maintain the lifestyle you envision in retirement.

This can be as easy as pulling up the last several months of your checking account or credit card statements and getting an average. Some months will be higher than others, and there will be those one-off expenses that pop up from time to time, so the more months you can look at, the better the information you’ll get.

If you saw a news flash that the zombie apocalypse was underway, you’d want to know how many resources you had on hand and how long they would last you. Likewise, in retirement, you’ll want to have a good idea of your future expenses and how long your retirement accounts will be able to last.

3. Not Having a Will or Trust

We mentioned earlier how it’s critical to work with a team of financial professionals. Part of that team should include an estate planning specialist. They can work alongside your financial advisor to identify gaps in your estate plan. All families are different, but there are important legal documents that every family should have. Dying without a will or trust could lead to some difficulties for your family.

4. Claiming Social Security Too Early

You probably could go trick-or-treating on October 30, but chances that you’ll get the same amount of candy is slim. Similarly, a common money mistake is claiming Social Security benefits earlier, but you’re not going to get as much as you could if you wait a little longer.

Nearly 30% of people who are eligible for Social Security retirement benefits claim those benefits at the earliest age of 621. Meanwhile, only about 10% of non-retired Americans delay claiming their benefits until age 702. So, when should you and your spouse claim your benefits?

The answer depends on several factors, including, but not limited to, your health and life expectancy, your need for income, and whether you are still working. However, far too many people fail to consider those factors and sign up as soon as possible. It’s an important money mistake to avoid in retirement.

5. Paying Too Little in Income Taxes

It’s hard to imagine that not paying enough in income taxes could be a mistake. After all, does anyone enjoy seeing their paycheck reduced? While we aren’t arguing the merits of the tax code, we suggest that having zero dollars of taxable income, or even “negative” taxable income, could be a grave money mistake.

For example, you may find that when you retire, the amount of income tax you pay declines for some time. However, the IRS will come knocking on your door (figuratively speaking) once your pre-tax retirement accounts (like Traditional IRAs or 401(k)s) become subject to Required Minimum Distributions. This could force you into a higher tax bracket at some point during your retirement.

Avoid Making These Money Mistakes

Avoiding these money mistakes can help you achieve your retirement goals. One way to help you make the most out of your retirement is by working with a competent and thorough team of professionals. Retirement is a complex time in our financial lives, working with a financial planning team may provide you with clarity and help you avoid money mistakes.

If you have any questions about these avoiding these money mistakes or other potential money mistakes that could deter your plans for retirement, start a conversation with our team below.

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Why even chance letting the smallest money mistake turn into a big one? Working with a financial planning team that works with you on your retirement goals, taxes, estate plan, risk management, and investment management can alleviate the financial stress that these money mistakes can create.

5 Money Mistakes to Avoid | Watch Guide

00:00 – Introduction
01:18 – 1. Letting Emotions Drive Your Investment Strategy
05:51 – 2. Not Reviewing Your Spending Habits
11:20 – 3. Not Having a Will or Trust
14:48 – 4. Claiming Social Security Too Early
17:49 – 5. Paying Too Little (or Too Much) in Income Taxes
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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.