After decades of hard work, you’ve finally opened the door of your golden years. Perhaps you have several plans from enjoying a round-the-world trip or living a luxurious lifestyle in Utah. However, you need to be smart about your financial decisions if you don’t want to jeopardize your retirement. Make sure to avoid these common money mistakes.
Being too generous with financial gifts.
Most folks have probably done everything for their family over the years. But after retirement, they still want to support their children, especially those who earn a modest salary. You might want to pay for your child’s home, his wedding, or your grandchildren’s education. While there is pleasure in giving during your lifetime, it can take a toll on your retirement savings.
Financial advisors strongly recommend that you shouldn’t sacrifice your financial security for the sake of your adult children. Remember that your circumstances can change and that resources can diminish. Life events such as illness, incapacity, remarriage, divorce, or a natural catastrophe can increase your financial needs. Explain to your children that if you support them now, there’s a high chance they’ll have to support you in the future.
Starting Social Security too soon.
While you are eligible to take out Social Security retirement benefits when you turn 62, it might not be an excellent financial move. Doing so will permanently reduce your benefit by 25% than if you wait until your full retirement age. It’s best to maximize your lifetime benefit by deferring Social Security until FRA or up until 70 if you have enough savings to cover your living expenses.
Aside from a larger Social Security check for life, claiming your benefits after FRA will also boost spousal benefits. When the high-earning spouse waits for the full payout, the surviving spouse will get a locked-in maximum spousal benefit. Starting Social Security early is indeed the fastest way to increase your monthly paychecks. But it won’t be worth tapping into your retirement benefits too soon if you’re expecting to live longer.
Paying off low-interest debt too quickly.
It can be emotionally gratifying to become completely debt-free, but it doesn’t always make financial sense to pay off all of your debts. Debts such as your mortgage have low-interest rates, and you don’t have to pay it off quicker than you need to. If you’re earning a more reasonable rate on your investments, you’re better off letting your portfolio grow than getting rid of your home mortgage.
If you have just enough savings, you don’t want to use all of it and unable to cope with the necessary expenses and emergencies later. When this happens, you have to take on new debt and pay it back with a much higher interest. If you can manage your monthly loan repayments, it might be wiser to keep your mortgage going even after you leave the workforce. Instead of paying off your home, prioritize paying off other debts with higher interest rates like your auto loan, credit card, or student loan.
By avoiding these mistakes, your golden years can be filled with comfort, freedom, and independence.