Whether you’ve been forced to retire earlier than expected or have worked hard to retire early, there are five common mistakes to avoid if you want to get the most out of your post-work life. By being aware of these early retirement mistakes, you can plan accordingly to be set financially, mentally, emotionally and physically.
Image Credits: LendingMemo.com.1. Rolling Over Your IRA
As you approach early retirement, you might be wondering what to do with your workplace retirement account. In most cases, you’ll roll those funds into an Individual Retirement Account. The problem with that is, if you’re retiring early, you might have to withdraw those funds earlier than expected. You will face an expensive tax bill since that is a violation of the complicated IRS rules regarding IRA withdrawals.
Additional IRA rollover problems include:
-Rolling money into an investment that is actually more expensive than what you currently own. You’ll end up paying expensive fees annually and can be talked into variable annuities since they receive higher commissions.
-An advisor might persuade you to cash out your pension since they’ll earn a commission. It will be harder for you to match what that pension would have paid.
-If you don’t withdraw steadily, the fees and penalties could deplete your account faster than expected.
-You might be tempted to seek high returns through a self-directed IRA, but these investments are extremely risky and could end up costing you a fortune.
To prevent these mistakes, educate yourself about the risks involved with rolling over your IRA. Consult a financial advisor whom you trust or seek information from trusted sources like Kiplinger before making any rash decisions.
2. Spending Too Much Too Quickly
Life expectancy has been steadily increasing. While that’s incredible news, it does present a serious problem for those who retire early: If you spend too much money too quickly, you won’t have enough to enjoy the rest of your retirement. The standard 4 percent safe withdrawal rate won’t be as effective for early retirees, who should consider keeping their first-year withdrawal under 3 percent of their portfolio.
The best way to keep your withdrawal rate low is to have a detailed budget before retirement. Besides taking into account recurring expenses, don’t forget about any potential one-time expenses, like auto or home repairs.
The Vanguard Group has a useful retirement expense worksheet to help create your budget.
3. Taking Social Security Too Early
Even though you’ll be able to start collecting Social Security benefits at the age of 62, you’re better off delaying that in most circumstances. For starters, if you collect your Social Security income at 62, you’ll only receive 75 percent of your monthly benefit. If you wait until age 70, you will receive 132 percent.
While there are some situations in which you might need to apply for Social Security income earlier than expected, such as not being able to find full-time work, you should plan ahead so that you can delay collecting. The Social Security Administration has a benefits calculator that can help you plan to optimize your benefits.
4. Not Considering Future Medical Costs
Because you’re younger than traditional retirees, you’re generally in better health. While this is a nice perk, it’s also a little misleading. Because you’re in excellent health now, and potentially for the next several years, you might not be considering future medical costs.
Fidelity Investments estimates that a 65-year-old couple who retired in 2015 will spend $245,000 on health care throughout retirement. Believe it or not, that figure doesn’t take into account any long-term costs.
Start planning for health care costs as soon as possible in your early retirement to avoid potential financial problems down the road.
5. Getting Bored
With so much time on your hands, it’s easy to become listless. The troubling part of being bored is that this can lead to your spending more money or even possibly developing health problems such as depression.
[tweetthis]To prevent boredom, consider volunteering, learning something new, or finding a hobby #seniorliving[/tweetthis]
To prevent boredom, consider volunteering, working part-time, learning something new in a class or workshop, finding a new hobby, exercising regularly, or participating in the myriad of activities offered in senior living communities.
This article was originally published on After55.com: 5 Early Retirement Mistakes to Avoid
—
More retirement advice from After55.com:
–10 Places to Retire with Great Weather
–Factoring Healthcare Costs into Retirement Planning
–Top 5 Affordable Cities to Retire on a Budget
Ready for more decorating tips? This time we’re listing ideas with the chosen color red. The color red seems to be noticed more than other colors. Red cars have a notorious reputation for being pulled over more by cops because of the vibrant color. A small dose of a bold and vibrant red adds energy […]
I myself will be facing the impending graduation date this December. I think the most intimidating thing about being done with your college career is what’s to come after that traditional hat toss… The job search. These days, getting a job seems to be next to impossible. I know I have a lot of questions […]
One of the limitations facing many renters is the inability to paint walls. Luckily, white walls are quite popular right now. But even with that little bit of good news, white walls aren’t necessarily everyone’s favorite. Nor are they always the best solution. But just because you can’t paint a wall, doesn’t mean you can’t […]
When you are actively on a roommate search, you can forget to put yourself out there for the other person to get to know a bit. Letting potential roommates know who you are should be part of the process. Here are some things to consider sharing when you are talking seriously with someone about sharing […]
3. Taking Social Security Too Early
Even though you’ll be able to start collecting Social Security benefits at the age of 62, you’re better off delaying that in most circumstances. For starters, if you collect your Social Security income at 62, you’ll only receive 75 percent of your monthly benefit. If you wait until age 70, you will receive 132 percent.
While there are some situations in which you might need to apply for Social Security income earlier than expected, such as not being able to find full-time work, you should plan ahead so that you can delay collecting. The Social Security Administration has a benefits calculator that can help you plan to optimize your benefits.
4. Not Considering Future Medical Costs
Because you’re younger than traditional retirees, you’re generally in better health. While this is a nice perk, it’s also a little misleading. Because you’re in excellent health now, and potentially for the next several years, you might not be considering future medical costs.
Fidelity Investments estimates that a 65-year-old couple who retired in 2015 will spend $245,000 on health care throughout retirement. Believe it or not, that figure doesn’t take into account any long-term costs.
Start planning for health care costs as soon as possible in your early retirement to avoid potential financial problems down the road.
5. Getting Bored
With so much time on your hands, it’s easy to become listless. The troubling part of being bored is that this can lead to your spending more money or even possibly developing health problems such as depression.
[tweetthis]To prevent boredom, consider volunteering, learning something new, or finding a hobby #seniorliving[/tweetthis]
To prevent boredom, consider volunteering, working part-time, learning something new in a class or workshop, finding a new hobby, exercising regularly, or participating in the myriad of activities offered in senior living communities.
This article was originally published on After55.com: 5 Early Retirement Mistakes to Avoid
—
More retirement advice from After55.com:
–10 Places to Retire with Great Weather
–Factoring Healthcare Costs into Retirement Planning
–Top 5 Affordable Cities to Retire on a Budget 
