Avoid These Mistakes To Make The Most Of Your Retirement

Retirement can be a wonderful experience, but there are some mistakes to watch out for. Between saving up, preparing important documents, considering a move, and understanding all the different sources of income, there's a lot of room for error. Read on for mistakes to avoid for a smoother retirement experience.

Tapping Your 401(k)

There are plenty of times in life when pulling some money out of your 401(k) seems like a good idea. When you're in need of a loan, why not borrow the money from yourself?

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Robert Alexander/Getty Images

However, doing so can set you behind on saving for retirement. While repaying the loan, many find themselves lowering or suspending contributions. As a result, they end up with less retirement savings overall. Unless it's an absolute emergency, try to avoid tapping your 401(k).

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Not Preparing For Assisting Living Costs

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When planning for retirement, it can be easy to think of it in terms of current living expenses. However, the cost of living can change dramatically age you age, especially when assisted living becomes necessary.

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Assisted living costs around $50,000 a year on average, and a private room in a nursing home is twice as much! Factor these costs into your savings and consider long-term care insurance and other programs that may be helpful down the line.

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Rushing Into A Big Move

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When retirement rolls around, the world becomes your oyster. It can be tempting to get up and move to whatever place seems the most appealing. However, be sure to exercise some caution.

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Just because the climate is nicer or the mortgage is cheaper doesn't mean that the place you move won't have its drawbacks. The culture, customs, laws, taxes, and more can all be surprisingly different, even within the same country. Try renting a place first to see how it goes.

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Putting Off Writing A Will

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Writing a will can seem a little daunting, but it's better to have one than to leave your estate up to probate court. Without a will, a judge could hand over your assets to someone you'd rather didn't have them, leaving your intended heir empty-handed.

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Even if you don't have a huge net worth, there are still plenty of assets that could form a hefty estate. Plus, you'll get to choose an executor who can make any necessary decisions about the estate.

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Getting A Timeshare

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Timeshares may seem like a great idea, since they enable retired individuals to travel without worrying about where to stay. While they may sound like a deal, they can end up being more expensive than they're worth.

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Fees and renovations can tack on thousands of dollars a year, and then there are all of the travel costs. Perhaps the most compelling reason to beware is that timeshares aren't always the easiest to sell. That level of commitment may not be worth it.

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Accidentally Tossing Things You Need

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Many seniors find themselves ready to downsize around the time they retire. Typically, the kids are out of the house, and having two stories isn't as ideal when planning for years ahead. Downsizing may mean getting rid of some things, but be cautious about that.

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Retired accountants, doctors, and other professionals may need to hold onto vital records. Retirees in general may also benefit from holding onto tax records for the sake of asset evaluations down the line.

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Not Creating A Schedule

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Having a daily routine can easily go out the window the minute retirement hits. All of a sudden there's more time than you can fill! At least, that can be the case for those who don't plan.

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To avoid a painfully empty calendar, plan out what you'll do when you're retired. This may include part-time work, taking classes to learn something new, or delving deeper into a hobby. Come up with a schedule so your sense of purpose stays strong.

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Not Anticipating Tax Changes

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During retirement, varying sources of income may have different tax implications, such as a required mandatory distribution (RMD), which kicks in at age 72 and is taxed. Understanding how much tax you'll owe, what bracket you'll be in, and when to pay it is vital.

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It may be worth speaking with a tax advisor to prepare for the changes to come. Taxes will also be altered if you decide to retire in a different state, so be sure to plan accordingly.

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Falling For Scams

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Nowadays, there are plenty of ways for scammers to try and pull the hood over people's eyes to turn a quick buck. This is especially true for senior citizens since they are living off savings, which makes them more attractive to swindlers.

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Look out for any unsolicited programs that require upfront payments, promise huge returns, or ask for sensitive information that increases the risk of identity theft. It's a good idea to look up reviews on any company before working with them.

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Not Being Willing To Invest

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While saving for retirement one paycheck at a time may seem like the safest option, it may not be the most efficient way to do it. Some individuals resist the idea of investing because of the risk.

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However, the interest accumulated in a savings account may not even be able to keep up with inflation. In other words, there's always a degree of risk, so making cautious investments may be a way to get ahead, or at least to keep up.

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Being Too Frugal

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With so much retirement advice centered on saving, it can be easy to become too frugal. It's important to have all your bases covered, but it's just as vital to keep up your quality of life.

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Don't go overboard by sacrificing things that are important to your happiness for the sake of savings. Being too cautious may leave you with a larger estate to pass on, but those funds are there to be used, not avoided at all costs.

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Not Having A Target Date

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It's a good idea to have a target date in mind that's an estimation of when exactly you'll retire. Having one can impact the financial decisions that you make to best optimize your funds.

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As you get closer to that target date, investing decisions may become more conservative to ensure that everything runs as planned. It also gives financial experts some insight into how to best advise you on investment options and necessary contributions so you can retire on time.

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Leaning Too Heavily On Medicare

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Between Medicare and supplemental insurance, many retirees are able to get the majority of their medical expenses covered. However, there are still things like dental work, eyeglasses, and procedures that may not be completely covered.

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Plus, insurance comes with deductibles and copays that can add up quickly. It's important to plan on still needing to pay for certain medical bills. Relying too heavily on any one program and expecting to be covered can set you up for a rude awakening later on.

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Not Having A 'Plan B' If You Want To Keep Working

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With modern technology, people are living longer, healthier lives. This means that some are choosing to retire at a later age. They may want to maximize their savings or simply enjoy work too much to leave.

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While holding off on retirement may seem like a safe bet, it's smart to have a backup plan in case something forces you out of work. A health issue or a company downsizing are just a couple of examples of why saving early and planning for the worst is a good idea.

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Not Drafting A Power Of Attorney

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A power of attorney can be vital later in life, as this individual will be able to make important decisions on your behalf. Drafting a power of attorney enables you to choose who this important individual will be while you're still of sound mind.

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This person can handle your finances and make decisions regarding your health care. Likewise, it may be a good idea to create a living will that specifies your treatment preferences should something serious occur.

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Claiming Social Security Prematurely

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Just because you're eligible to start claiming social security doesn't mean that you should. There can be some benefits to holding off. In addition to having more money to spread out over fewer years, there are also delayed retirement credits.

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You can make an extra 8% on your social security benefits for the years between your full retirement age and the age of 70. The perks can be different for everyone, so consult a professional to make an individualized game plan.

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Not Automatically Increasing Your 401(k) Savings Rate

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Especially if you started contributing to your 401(k) early on, it may be a good idea to have it automatically increase the amount over time. This way, you can gradually adjust to putting away the savings and contribute more as your income goes up.

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Automatically increasing your savings can also help when a financial hiccup happens and you need to lower the monthly contribution. It's better to go back to what you were paying before than to decrease it to below your bare minimum.

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Borrowing Against Your Home

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Many seniors find themselves with a large amount of equity if they've lived in a home for some time or have paid it off. This equity can be used as a loan, a move commonly referred to as borrowing against the home.

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Doing so can help get you out of a pickle, but it should be avoided whenever necessary since the loan will tack on payments and accumulate interest. For additional funds, it may be a better idea to get a cheaper place than to go the loan route.

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Dipping Into Savings For The Kids' College Or Wedding

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For some seniors, retirement lines up with major events in their children's lives like going to college, getting married, or starting a family. This can make it tempting to dip into retirement savings to help out with such events.

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However, there are plenty of other options that should be vetted out before retirement funds go on the line. Attending an in-state college or booking a less expensive wedding venue may be a wiser sacrifice than giving up some vital retirement savings.

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Waiting Too Long To Save For Retirement

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It can be a challenge to feel motivated to save for retirement when you're still decades away from it. But by the time retirement rolls around, people tend to wish they had started saving earlier.

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One financial planner based out of New Jersey warned that many of her clients don't start saving for retirement until their 40s, or even 50s. That means that to reach retirement goals, these individuals have to save much more per month than if they'd started two decades prior.