A careful approach to retirement can lead to years of enjoyment and financial security. Or you can go down a more reckless path. Here are some of the top ways to run out of money during your golden years:
Withdrawing too much of your money at once during retirement. What percentage qualifies as too much varies from person to person (many advisors suggest no more than 4% to 5% of your total assets a year), but the key is to take a balanced, well thought out approach to your withdrawals. While retirement can be an exciting time, it can also get out of hand. New retirees may find the sudden boost of free time turns into a giant spending spree. It may take some self-control to pick between a home renovation or an amazing vacation, but spacing out big expenditures can make your savings last much longer.
Not thinking carefully about the decision when to take Social Security. Many people are so eager to receive money back from the Social Security system, they sign up for payments at the earliest age possible. This could work for many people, but many others would benefit from delaying Social Security and receiving a larger monthly payment. If you are in good health and there is longevity in your family the odds may be in your favor to wait.
Stopping to save and invest in retirement. There is no law requiring you to spend all your income in retirement. You may find you actually enjoy continuing to make new investments and watching your pool of assets increase. Those continued savings can add up to a lot of money and provide a nice added cushion.
Paying for other peoples expenses. Is it nice to take ones family out to celebrate special occasions? It is probably one of the best and most memorable parts of life. But is buying the grandkids take-out every Monday and Thursday as essential? Theres a line between being generous and financing unnecessary expenses. Consider if your gifts are helpful or indulgent.
Not considering adjustments to your spending following bad investment results. If your investments dip in value due to a stock market downturn, it may significantly extend the longevity of your savings if you lower the amount you take out. When markets plunge and paper losses mount up consider reducing your withdrawals and let things build back up again. Conversely, when your portfolio zooms up in value, it may be a great time to take out extra and go on that dream vacation.
Taking a thoughtful approach to your retirement finances can significantly increase the likelihood of meeting your lifes goals, reduce your financial stress and create an inheritance for the next generation. It may take more time to plan and require more discipline than a seat of your pants approach, but it can leave you much better off over your lifetime.
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