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Seven Rookie Retiree Mistakes to Avoid

USA Today asked financial experts to list the biggest mistakes people make during their first year of retirement.

The newspaper then narrowed down the list to seven key missteps.

  1. Not having a financial or a life plan: A large number of people head into retirement without either a financial plan or a lifestyle plan. The latter covers what a new retiree intends to do to bring meaning and fulfillment to his life.
  2. Overspending: It’s easier to shop more or take more vacations in retirement because there is more time for such activities. Yet, if a new retiree tries to enjoy all of the activities he has been deferring during his working years, he may end reducing his savings more than he should.
  3. Claiming Social Security too early: Delaying the age at which benefits are claimed can make a big a difference in lifetime wealth.
  4. Being too conservative with investments and not considering inflation: Rising prices will erode a retiree’s purchasing power if too conservative of an allocation is followed. USA Today cited John Sweeney of Fidelity suggesting 65-year olds allocate half or more of the portfolios to stocks.
  5. Retiring too early: A retiree may never come close to replacing the income he realized during his full-time working years. Jeremy Kisner of Surevest Wealth Management told the newspaper that while 69% of people plan to work after retirement, only 27% actually do.
  6. Underestimating life expectancy: Retirees may live much longer than they expect to. Half of all men who reach age 65 will live another 17 years, while women can look forward to an additional 21 years. Longer life-spans extend the period a portfolio has to last.
  7. Not having a health care strategy: One of the biggest expenses retirees can expect to face is health care. Having a plan for long-term care can make a big difference protecting one’s finances.

Source: “7 Big Mistakes to Avoid in First Year of Retirement,” USA Today, December 4, 2013.


Discussion

William Schmonsees from OR posted 9 months ago:

I suggest that conventional financial advice is too conservative. I have been retired (unwillingly) since age 58 (2005) and have been 90% invested in stocks since then. I took SS at age 62; suffered through the market collapse; regaled in its rebound. My net income is about the same as it was in 2006; net worth down about 20%, mostly due to home depreciation. We live comfortably. I see no reason to invest in CD's or similar low yielding vehicles.


D Monchil from WA posted 9 months ago:

My long term care company went bankrupt and my wife's raised the premium a staggering amount. Long term care insurance is a gamble.
Will the company be there when you need it and will they be able to pay anything?


Phil Morgan from VA posted 9 months ago:

I also agree that conventional advice is too conservative. I was watching an interview with Warren Buffet last week and he was asked how he would invest for his wife for when he was no longer alive. Without hesitation he said 90% in SP500 stocks and 10% short term bonds. That way, if the market was down, Warren's wife could use some of the bond money to get by until the market regained it's upward direction, which Warren claims it always does.


James Leever from MI posted 9 months ago:

I've never personally owned bonds. I keep 2-3 years of cash available to ride out the bumps in the market and invest the rest in stocks - SSR and Shadow Stock Portfolio. It has served me well. I earn much more than I take out, so my heirs may live better than I do. The "Withdrawal Plans, How Long Will My Money Last?", issued by AAII in 2003 gives me confidence that I am on the correct track and needn't loose sleep worrying about money.


Bill Gottdenker from NJ posted 9 months ago:

I mildly disput the point about taking Social Security too early. While I really didn't need it, I choose to take SS at 62 because it would have taken me 15 years to recoup the payments I would have forgone had I opted to begin at age 66. This calculation didn't even take into consideration cola increases or the possible( probable ) decline in the value of the dollar.


Bill Gottdenker from NJ posted 9 months ago:

I mildly dispute the point about taking Social Security too early. While I really didn't need it, I choose to take SS at 62 because it would have taken me 15 years to recoup the payments I would have forgone had I opted to begin at age 66. This calculation didn't even take into consideration cola increases or the possible( probable ) decline in the value of the dollar.


Steve Laube from GA posted 9 months ago:

Agree, the Monte Carlo simulations that lead to the recommended 4-5% withdrawal typically withdraw from stocks even when the market is down, use a less than 50% allocation to stocks, and also put running out of money in 29 years and eleven months into the "bad column." Monte Carlo "random sampling" removes the business cycle, allowing say 4 "down big years" in a row to be counted when it has never happened. Last, for many retirees (if you belong to AAII you are one of them) inflation is overstated as your relatively high lifestyle will unfortunately diminish with age; lowering your personal inflation.


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