After working so hard, you’ve finally found yourself in retirement with the world in front of you — now what? Studies show mental health increases the most immediately following retirement. That’s why it’s so important to maximize the early retirement years.
Planning for this time can help you avoid falling into a rut, and you don’t want to feel like your retirement hasn’t lived up to your expectations. Here are three common early retirement mistakes to avoid.
1. Not reducing debt
It’s common for retirees to reduce their spending and increase their liquid savings as they near retirement. In fact, one study found that savings accounts tend to increase by about 5.5% to 12.1% at the onset of retirement. The same study found that retirees tend to reduce their overdraft usage and bank late fees around the time of retirement.
This is good news when you consider how much Americans tend to pay in late fees to their banks. Between 2011 and 2020, American consumers paid $345.1 billion in late fees. When you compare the average late fees to the average amount earned in interest, the total nets out at about a $198-per-account annual loss for consumers.
On a fixed income, your margins could be tight, and coughing up $200 a year for late fees, plus whatever interest charges your debt accrues, can be challenging in retirement. Avoid this by reducing your debt as much as possible as you head into retirement. You want to make sure you’re able to pay all of your bills each month, ideally with some breathing room. Also remember, you can shop around for the best retirement bank accounts that don’t charge massive fees.
2. Not planning for a long enough retirement
A lot of people don’t realize how long they might live. Retirement could last more than 30 years, so making moves too early could be a mistake. On one hand, that’s fantastic — being alive is awesome! On the other, if you haven’t planned for a long retirement, you could find yourself in a financially insecure position the further into retirement you go.
How can you avoid this? One of the strongest strategies is to max out your retirement contributions for every year you are eligible — that will help you establish the strongest savings base possible. Another option is to take Social Security later. Instead of taking your Social Security benefit at full retirement age, if you wait until age 70, you could receive delayed retirement credits, which could increase your monthly amount.
You might not have to work full time in order to delay this. Getting a side hustle or monetizing a hobby can help you retire whenever you’re ready while still helping you bring in monthly income and remain active.
3. Not creating retirement goals
For many people, simply being able to retire is the ultimate goal. Once you’ve reached that goal, it’s time to set new ones so you can fully enjoy your retirement. These goals could range from getting a new hobby to volunteering or developing an income stream. One major goal for many retirees is deciding what they want to leave behind: consider retirement as a time to develop your legacy. This should include writing a will and determining how your assets will be dispersed.
As many as 60% of Americans do not have a will, which can cause major problems for your descendants in case of sudden death. However, estate planning isn’t just about deciding what will happen to your assets when you die. It can also help you decide how you will approach gifting while you’re alive. If you want to share your assets with your children or grandchildren while you are still living, it’s smart to consider how you will do so in your early retirement years.
For example, if you plan to buy a vacation property that you want to enjoy with your family, this is a goal you would want to earmark for your initial retirement years. Or, if you want to contribute to your grandchildren’s education or pursuits, doing so early can help you reap the reward of watching them succeed.
Not only should you make these plans in the early years of your retirement, but you should also initiate these discussions with your family so that they are well aware of your wishes and the lifestyle you want to lead in retirement.
How you approach your early retirement years can set the tone for the rest of your retirement. You’ll get to decide how your money and time will be spent and how you will establish your legacy. The first step to a smooth retirement is getting your own financial affairs in order by reducing debt and fees in combination with retiring at the best time for you. Then, use your initial retirement years to create your legacy, deciding how and when you will give to others and participate in the joys of life.
Jolene Latimer has her master's in Specialized Journalism from the University of Southern California. She writes about personal finance, marketing and sports.
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