23 Retirement Mistakes Boomers Are Still Making

By: Georgia | Last updated: Jun 14, 2024

Gone are the days when retirement was mostly a matter of waiting for your pension checks to roll in. Since the 1980s, the baton has been passed to individuals, with 401(k)s and similar plans becoming the norm.

This change means the stakes are higher and the margin for error slimmer. As many Boomers reach their golden years, they’re discovering that securing a comfortable retirement requires more than just saving: it demands wise, informed decisions. Here are some of the most common retirement mistakes Boomers are making, so you can avoid them.

Not Planning for Retirement 

The biggest disservice that boomers can do is not having a plan for retirement. As they approach the end of their working life, the hustle and bustle of everyday life can often make them forget about properly planning for a retired life.

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One of the greatest retirement fallacies is saving enough money to ensure a good retirement. This is why proper planning can go a long way and save boomers a headache down the road.

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The Peril of Ignoring Portfolio Risk as Retirement Nears

As retirement approaches, adjusting your investment portfolio for risk becomes crucial. Certified Financial Planner Rachael Camp emphasizes the importance of shifting towards lower-risk investments like cash and bonds as you near retirement.

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This strategic realignment helps safeguard against market volatility, ensuring a steadier financial base as one transitions from earning a regular income to relying on retirement savings. Camp stresses the value of cash reserves, suggesting that retirees maintain one to three years’ worth in cash to navigate through bear markets without compromising their financial stability.

Not Maximizing Savings

Your final working years are extremely important as you prepare for retirement. During this period, your income is typically at its highest, while expenses should be decreasing.

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Your mortgage should be paid off, or close to it, and kids should be financially independent. Even if you have diligently saved over the years, still try to maximize your savings as you prepare for the home stretch.

Poor Investment Strategies 

We are often told over and over again to make our money work for us. However, mistakes happen, and investments can be risky.

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While it might cost money, investing in a good financial advisor can assist in helping you put together a portfolio that meets your needs.

Timing Social Security Benefits Incorrectly

Decisions regarding when to start receiving Social Security benefits are pivotal. Taking benefits too early can result in significantly reduced monthly payments.

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Julie Virta emphasizes the importance of comparing the benefits of taking Social Security at full retirement age versus delaying until age 70. Planning around Social Security, especially when coordinating with a spouse’s benefits, can optimize the total income received during retirement years, affecting how much one needs to withdraw from their investment portfolio.

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The Risk of Withdrawing Too Much, Too Soon

The temptation to withdraw substantial amounts from retirement savings can jeopardize long-term financial security.

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Miklos Ringbauer, a CPA, warns against depleting retirement funds prematurely, which can lead to increased taxes and reduced income over time. Establishing a sustainable withdrawal strategy, mindful of market conditions and personal financial needs, is crucial to preserving retirement savings and ensuring lasting financial independence.

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Overlooking Healthcare Costs in Retirement

Healthcare expenses can consume a substantial portion of retirement savings. Virta advises incorporating healthcare spending into your retirement budget rather than viewing it as a separate entity.

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For those retiring before Medicare eligibility, exploring options like COBRA or the public marketplace is crucial.

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Strategic Planning for Healthcare Costs

Exploring healthcare options in retirement is crucial, as Camp points out. The public marketplace offers alternatives, though costs can be high.

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Strategic tax planning can unlock benefits like the premium tax credit to ease financial burdens. Diversifying investments across different account types and utilizing Health Savings Accounts can provide significant tax advantages and a buffer against healthcare expenses, granting more control over your financial health in retirement.

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Not Maximizing Employer Match Benefits

BankRate notes that neglecting the employer match on a retirement account is like leaving free money on the table. This match is essentially a risk-free return on your contributions, instantly boosting your retirement savings.

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For instance, if your employer matches half of up to 6% of your salary, contributing the full amount effectively grants you a 50% return on your investment. Embracing this opportunity is a key step in optimizing your retirement planning, ensuring you harness every available benefit to build a more secure financial future.

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Missing Out on Employer Benefits

While it may sound unbelievable, one in four workers don’t take full advantage of their employer’s matching 401(k) contribution.

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Don’t be that one in four who misses out on these benefits offered by your employer. The most common match is fifty cents on the dollar, up to a maximum of 6% of the employee’s pay.

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The Dangers of Entering Retirement with High Debt

Fortune shares that carrying debt into retirement can severely impact financial security, potentially reducing the funds available for essential living expenses.

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The trend of increasing debt among older Americans demonstrates the importance of debt management strategies pre-retirement. Proactively addressing debt, whether through accelerated payment plans or adjusted retirement timelines, is vital to preserve retirement savings and maintain financial independence in later years.

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Obtaining High Debt in Retirement 

While you shouldn’t enter retirement with debt, boomers should be aware of the dangers of racking up high amounts of debt during retirement. If you rack up debt, how will you pay it off without a paycheck?

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It is crucial to save, but it is even more important to get rid of high interest debt. This might require deferring your planned retirement date or living a more frugal lifestyle.

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Not Maximizing Pre-Tax Savings Opportunities

Many near-retirees fail to fully utilize pre-tax savings vehicles like 401(k)s and IRAs, according to Maya Sudhakaran, head of growth and acquisition at investing app Plynk.

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Maximizing contributions to these accounts, especially with potential employer matches, can significantly enhance retirement readiness. The additional catch-up contributions allowed for individuals over 50 provide a valuable opportunity to boost retirement savings, underscoring the importance of strategic financial planning in the pre-retirement years.

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Underestimating Retirement Expenses

A common oversight is underestimating the costs associated with retirement, leading to financial shortfalls.

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Sudhakaran emphasizes the necessity of a comprehensive budget that accounts for all potential retirement expenses, including healthcare, maintenance, and taxes. A detailed and realistic financial plan is crucial for ensuring that retirees can sustain their desired lifestyle without the risk of outliving their savings.

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Being House-Rich, But Cash Poor

Houses appreciate in value, but the ongoing costs of taxes, utilities, services, repairs, and maintenance can be too much for some retirees to handle. By the time you retire, consider the benefits of downsizing by selling your house and moving to a smaller home that is more affordable.

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You could also invest the remaining money to support your new lifestyle and learn to enjoy the new community that comes with your smaller house!

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Making Rash Decisions

The early years of retirement are often characterized by higher levels of spending. These are known as the “go years.” These are the years you are young and healthy enough to do all the things you’ve always wanted to do.

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However, these rash decisions can impact the retirement plan created for the remainder of your life. While you want to avoid under-spending, also avoid overspending and running out of funds too quickly.

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Under-spending and Not Enjoying Retirement

One of the biggest mistakes boomers make in their retirement is being extremely frugal with what they have saved. Sure, don’t overspend and live a lifestyle based on rash decisions, but don’t be miserable and not enjoy the fruits of your labor.

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Old habits are hard to break, but give yourself permission to say “yes” and spend money more freely than you have in the past. No one knows what the future holds, so live in the now!

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Neglecting Old Retirement Accounts

Many individuals neglect to consolidate or manage old retirement accounts from previous employers. GoBankingRates explains that this oversight can lead to fragmented retirement savings and potentially less optimal investment growth.

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Regularly reviewing and potentially consolidating these accounts can streamline one’s financial strategy, ensuring a more cohesive and efficient approach to retirement planning.

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The Danger of Financial Misinformation

Ringbauer highlights a troubling trend: retirees falling prey to financial misinformation. Ignoring professional advice for seemingly lucrative opportunities can lead to catastrophic losses.

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The allure of doubling one’s money can be tempting, but without sound investment strategies, such endeavors can jeopardize years of careful saving.

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Cashing Out Too Soon

The promise of a higher return, once they have tried to put their money on particular investments, can push retirees out of their pensions. This is not always the best move to make, as investments are often unpredictable.

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The longer your life, the more likely you are to lose by cashing out your pension early. Be cautious, and again, talk to your financial advisor before making any big investments.

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Supporting Working Family Members

While family might always come first, you have to remember that your savings are fixed and your ability to earn more money is severely reduced in retirement.

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Adult children are better equipped to recover from financial difficulties, so avoid spending or giving large monetary gifts or loans after retirement.

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Failure to Avoid Scams and Fraud

Unfortunately, retirees are most likely to be the target of scams. Don’t let yourself be a victim of leeches. Instead, consult with an advisor before making any investments or laying out a large amount of cash for anything.

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Scammers are very convincing, so protect yourself. Keep a certain level of skepticism when it comes to investments being presented to you.

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Not Staying Physically or Socially Active 

The worst thing you can do after retirement is to retreat to your home and be physically and socially inactive. It is important to maintain social connections and enjoy the company of friends and family.

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The mind is a muscle that needs to be engaged. You’re no longer working, so find new ways to challenge yourself. Reading, puzzles, and engaging in your local community can help keep your brain sharp and functioning into your later years.

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