Individuals in their 60s often experience this decade in two distinct parts: the period leading up to retirement and retirement itself. Retirement may have a set date on the human resources calendar, but it could involve years of transition as well. To successfully navigate both phases of this important decade, financial experts highlight the most significant financial mistakes to avoid in your 60s.
1. Not planning how they will spend their time in retirement
David Edmisten, CFP® and founder of Next Phase Financial Planning, LLC, suggests that retirement presents an opportunity to discover or revitalize personal purposes beyond work.
“Commonly, retirement planning focuses on numbers – how are my investments performing? What’s the market doing? Have I saved enough? Will I run out of money?” Edmisten explains. “While these questions are crucial, not enough time is dedicated to contemplating how to find fulfillment. Developing a sense of community and purpose is linked to increased longevity. Edmisten advises clients to spend more time reflecting on how they will spend their time, as this decision can also have financial implications.
For instance, individuals who choose to continue consulting in their field post-retirement or work part-time in a different career may delay tapping into their retirement funds or face penalties if they resume working after starting Social Security benefits. Moving to a higher-cost area to be closer to family or friends could deplete retirement funds faster than anticipated. Similarly, taking up an expensive hobby to fill the void left by work could also impact finances. Considering factors such as living arrangements and time allocation helps individuals transition into retirement emotionally, physically, intellectually, and financially.
2. Not enjoying their leisure years
Emily Rassam, CFP® and Senior Financial Planner at Archer Investment Management, notes that many clients are hesitant to withdraw from their retirement accounts.
“Having been in accumulation mode during their working years, individuals may find it daunting to transition to withdrawing funds in retirement,” she explains. The fear of spending too much or too soon can prevent people from enjoying experiences like travel, hobbies, or other pursuits due to declining health. Rassam helps clients determine their ideal retirement savings target to feel at ease with spending.
3. Following blanket guidelines for retirement age
While some opt to retire at 65 for Medicare eligibility, others born after 1960 may wait until age 67 to access full Social Security benefits. However, these standard retirement ages may not suit everyone’s financial circumstances.
“Each person’s financial situation is unique,” Rassum observes. “Some individuals could retire at 60 without issues, while others might delay beyond 65 or 67 because that is what they believe they ‘should’ do.” Collaborating with a financial planner can help prospective retirees pinpoint the most favorable retirement age based on their specific situation.
4. Believing everyone has the same “number” for retirement savings
Although general guidelines exist regarding retirement savings amounts, Rassum stresses that this figure is highly personalized. Financial planning aims to identify the necessary funds to cover long-term expenses, healthcare needs, and personal goals.
5. Not having a diversified tax strategy
Edmisten highlights that retirees often concentrate on accumulation and forget to consider the tax implications of withdrawing funds.
“Typically, individuals earn the most just before retiring and end up with lower earnings during retirement,” he points out. However, at age 73, retirees must begin taking Required Minimum Distributions (RMDs) from their retirement accounts, potentially pushing them into higher tax brackets. Failing to plan for taxes may result in unexpected tax payments, diverting funds from retirement enjoyment.
To prevent excessive taxation, Edmisten recommends distributing funds across various tax brackets prior to retirement. In addition to pre-tax 401(k) funds, he suggests allocating after-tax funds to an IRA and a taxable brokerage account without savings limits or mandatory withdrawals at specific ages.
6. Not accurately budgeting for giving
Generosity is a personal decision, but excessive giving can strain retirement budgets, warns Edmisten.
“Overly frequent or thoughtless giving can disrupt retirement finances,” he cautions. Edmisten advises clients to allocate funds for giving, whether through tax-free gifts during their lifetime or by earmarking money for inheritances. Prioritizing personal needs and financial stability before assisting others is essential to avoid financial strain.
7. Not budgeting for medical expenses
While Americans aged 65 and above qualify for Medicare, retirees must account for supplementary insurance to cover services not included in their primary plans, like prescription drugs, dental, vision, and hearing care. Additionally, they must prepare for out-of-pocket expenses. Given escalating healthcare costs and age-related health concerns, a typical couple retiring at 65 in 2023 should budget around $315,000 for healthcare expenses. Inadequate savings for medical costs can significantly impact retirement planning.
8. Being too aggressive or too conservative with your investments
Retirees could live two to three decades after retiring, so smart investing strategies remain crucial. Rassam notes that some clients maintain the same aggressive investments they had 30 years ago, while others are overly conservative.
“Remaining in the same aggressive funds or shifting to ultra-conservative investments may not be ideal,” she explains. Balancing investment choices between growth and stability can help retirees keep up with inflation while reducing risk and ensuring financial peace of mind.
