What not to do in retirement?

Retirement marks a transition from active employment to a period of relaxation, pursuing personal projects, and enjoying the benefits of your retirement savings. Since you will have a lot of free time, you should be realistic about the things you want to do and plan. If you are not well-prepared for retirement, you are likely to make some financial and non-financial mistakes. 

Some common mistakes people make in retirement are withdrawing from 401(k) too early, claiming Social Security too early, spending all their savings or emergency funds, making risky investments without diversifying, and downsizing too early. Also, taking up new debts and disregarding budgeting are things that can end up costing you down the line.

10 Things Not to Do When You Retire

There are certain pitfalls that retired people face that could jeopardize the anticipated stress-free days of retirement.

Here are some common mistakes to avoid:

Spending all your savings/emergency fund

If you are approaching retirement, you should save as much as you can, and cut down on unnecessary spending. Since you will be on a fixed retirement income when you retire, you should control your spending and keep track of what and how much you are spending. You should only dip into your savings pool or emergency funds when it is necessary.

You should review your monthly expenses to cancel non-essential subscriptions and other recurring payments that eat into your monthly budget. It is also a good idea to cash in on senior discounts on expenses such as insurance and meals.

Tapping into 401(k) and other retirement plans early

Withdrawing money too early from your 401(k), IRA, or other retirement account puts you at risk of outliving your money. You will have less money to live off in retirement, and you may end up broke and unable to afford your retirement expenses.  

Additionally, withdrawing money from your 401(k) or IRA before age 59 ½ attracts a 10% early withdrawal penalty, in addition to income tax on the withdrawal.

Claiming Social Security early

If you retire early, you don’t have to claim Social Security immediately. While you may be eligible to claim Social Security benefits as early as age 62, you can delay taking benefits until as late as age 70 to allow the money to keep compounding. 

You can also receive the full payout once you reach the full retirement age, which ranges from 66 to 67. If you claim benefits at age 62, your benefits payment will be reduced by as much as 30%.

Making risky investments without diversifying

As you approach retirement, you should move from high-risk to low-risk investments to protect your money. Usually, younger people can afford to make risky investments since they have a long time to recover their money.

However, once you retire, it is not a good idea to invest in risky investments like crypto and stocks that can wipe out your wealth in a market downturn. Instead, your priority should be to protect your retirement savings so that they last a long time.

If you are keen on investing to give your compounding interest a boost, you should diversify your investment portfolio to spread risk across all assets. Also, before investing in particular assets, you should do due diligence on the potential investments to determine if they are worth investing in.

Downsizing your home too early

When you are approaching retirement or are already retired, you may be tempted to downsize and move to a smaller retirement community. This may mean selling your large multi-bedroom home to tap into the accumulated equity. However, selling off your home too early may not be the best option.

Before selling your home, you should evaluate the real estate market to determine whether it is a good time to sell your home. If the housing market is on a decline, you could lose thousands of dollars on your home if you sell your home immediately. When the housing market is going down, it is better to wait.

If you are not in a hurry to downsize, you can rent out your home to generate a rental income. You can then use part of the income to rent a smaller house in your preferred retirement community or city. Renting allows you to experience the area before actually buying a home.

Disregarding budgeting

If you want to be financially secure in retirement, you should create a budget so that you know how much of your income is going into daily expenses. A budget can help you avoid impulse buying since you know what you are buying and how much you want to spend on a good or service. You will be able to track your finances and have a record of scheduled activities like a car repair or roof installation.

If you don’t have a budget in retirement, you are likely to buy expensive things that you do not need or are unnecessary. If you must spend extra, you should create an extra stream of income, get discounts on purchases, or trim your expenses to create room for other purchases.

Taking up new debts

Generally, when you retire, your income will be lower than your pre-retirement income, and you may not afford the debt repayments.

Carrying debts like credit card debt, mortgage debts, and student loans into retirement may strain your income, and you may be forced to take up a new job or new loans to be able to afford the loan payments.

Additionally, you should maintain an emergency fund that you can use to pay for unexpected expenses like car repairs. This ensures that you won’t borrow to pay for unexpected events.

Not trying new things

Once you are retired, you will have plenty of time to try new things or even explore your entrepreneurial spirit. You can use this time to volunteer for a course, get a part-time job, retire overseas, or enroll in a new course. Don't shy away from trying new opportunities, since they could open up new channels of socialization.

If there are events in your community, don’t simply stay home. You can join members of your community to have fun and meet new people. Exploring new opportunities and meeting new people could give you a new purpose in life.

Neglecting your appearance

As you get older, you will likely not look like you did in your 30s and 40s because your body has changed. However, just because you are retired and not working does not mean you neglect your appearance. You should maintain an exercise routine, and look after your hair, skin, nails, etc.

While binge-watching documentaries on Netflix can be an excellent way to unwind, it should not take up time for activities that keep you active and healthy such as exercises, morning runs, or hiking. You should stay active with mental, physical, and social activities.

Neglecting your health

Once you retire, you should be intentional about your health by engaging in activities that keep your body and mind fresh. While sometimes it’s a matter of luck, there are activities you can engage in to influence your health.

First, you need to exercise regularly to maintain your strength and endurance. Second, you should keep challenging your brain to keep it healthy and prevent the risk of Alzheimer’s. Lastly, a night of good sleep is important for your health, and it helps restore your energy, make your heart healthier, and reduce the risk of depression.