With just a few twists and turns, retirement planning can quickly become spooky. Many Americans are looking forward to having more free time after their workday ends, but some are finding themselves in a dark spot they didn’t expect. Overspending, lack of planning, and financial failure can turn your retirement dreams into a nightmare.
Learn about these pitfalls to avoid retirement horror stories.
- I don’t have enough savings for retirement.
- Too many withdrawals during early retirement.
- Retirement starts too early.
- High taxes will be incurred that will eat into spending.
- We rely too much on social security.
- Helping too many families.
- They focus on economics but ignore emotions.
- Make random and risky investments.
1. Not being able to save enough for retirement
According to a recent report from Ramsey Solutions, nearly one in three Americans is finding themselves in a scary retirement situation, with 34% having no savings. If you don’t have enough money for your retirement, you could end up running out of cash by the time your regular paycheck ends. Of course, unforeseen life circumstances can make it difficult or impossible to save for retirement. But if you don’t have enough savings, you could end up working many more years to maintain your income.
2. Too many withdrawals after early retirement
When you step away from the workforce, you’ll find plenty of activities to fill your time. If you’re not careful, you could wipe out decades of savings. Although your sense of adventure is healthy, you may need to slow down on your travel plans. You can plan one big trip a year, or you can prioritize your bucket list and check off items as your budget allows. This strategy will help you save money and find fun too.
3. Retirement starts too early
The best age to retire depends on your goals, health, and financial situation. However, if you decide to retire in your late 50s or early 60s, you could end up with a lot of unexpected expenses. Your health insurance may have been covered by your employer while you were working. If you retire before age 65, you’ll have to wait until you’re eligible for Medicare to buy insurance on your own, and premiums can quickly add up.
“Clients looking to retire early run a greater risk of depleting their savings,” says Katie Lindquist, a financial planner and owner of Lindenwood Financial LLC in Madison, Wisconsin. “To reduce this risk and develop a stronger overall financial plan, you can use a longer retirement schedule than you think you need when estimating the useful life of your assets.”
4. Generating high tax bills that erode spending.
“The biggest risk facing retirees is tax rate risk,” says J. Barry Watts, a financial planner and founder of WealthCare Corporation in Springfield, Missouri.
“The tax rate is scheduled to increase in 2026 (due to the expiration of the tax provisions of the 2017 Tax Cuts and Jobs Act). So, if you are married and make $150,000 a year, your tax rate will increase by 13.6% in 2026. ” he says. This can affect your budget and spending power.
“If you’re not yet retired, reduce your tax risk by moving your savings into tax-free accounts,” says Watts. This could include a Roth IRA, Roth 401(k), or Roth conversion. This strategy can help you avoid higher taxes if you earn a fixed income in the future. “While you pay taxes upfront on those dollars, your funds grow tax-free and can be withdrawn tax-free in retirement,” Watts says.
5. Relying too much on social security
Still, planning to rely on your Social Security paycheck to support your retirement can lead to misfortune. The average monthly benefit in September 2023 was $1,706.98. If you don’t have additional savings to cover your living expenses, you may have to take on additional work.
6. Helping too many families
When you look at the nest egg you’ve built over the years, it may seem like you have enough money to support more than just your family. Be aware that others may view your savings as a source of funds. If you’ve been good at saving money to spend for years, don’t be surprised if others ask for loans or financial help. You may be asked to help pay for your grandchild’s college education or provide funds for the down payment on a home for your adult children.
It helps to review your budget before sharing funds with others. “Try to live in a way that doesn’t deplete your savings too quickly,” says Celeste Robertson, an estate planning attorney and owner of the Celeste Robertson Law Offices in Corpus Christi, Texas. “Be careful about donating too much money, even to family members.”
7. Focus on finances and ignore emotions
If you spend all your energy on numbers and ignore your activity level, you may start to feel depressed after retirement. “Obviously the economic aspects are important, but I also discuss with my clients the emotional, social and psychological aspects, which can be just as important,” Lindquist says. says. Lindquist shares with his clients his four-stage framework created by Riley Moynes, author of His Four Stages of Retirement: What to Expect in Retirement. The four phases consist of vacation, inevitable loss, experimentation, and acceptance of life.
8. Make random, risky investments.
If you receive a call from an unknown individual offering a great investment opportunity, tread carefully. Putting a lot of your savings into a partnership or stock that promises big returns can be a huge failure. Scammers regularly flock to retirees because thieves know they have savings to steal. “Keep your savings in a safe place so you don’t lose it, such as in certain types of bank accounts or investments that don’t pose a high risk,” says Robertson.
