3 Bad Financial Habits of New Retirees
These common mistakes can derail your retirement savings
Most people will need to continue to nurture their nesteggs — typically, for two to three decades — after leaving the office. But financial advisers say they regularly see new retirees make several mistakes that can put their savings in jeopardy.
1. Big purchases Many people like to reward themselves when entering retirement — typically, with a trip or purchase to mark their decades of hard work. Ronald Myers, an adviser at Associated Financial Consultants in Fort Lauderdale, Fla., calls it “YOLO money” for “You Only Live Once.”
“I’m the first guy to say, 'Go out and enjoy yourself early on; you aren’t going to get any healthier,'” Myers says. But some retirees go too far, spending funds that can blow a hole in their retirement plan.
Example: A retiree who plans to withdraw $25,000 a year from a $500,000 nest egg and starts retirement by taking $50,000 to buy a boat. That’s two years of income.
If that big withdrawal is followed by a lengthy market decline, the retiree’s nest egg could expire before he does.
2. No cash cushion “I see a lot of people cutting it really close and living paycheck to paycheck” in retirement, says Blair duQuesnay, director of investments at ThirtyNorth Investments in New Orleans, La.
The problem comes when an emergency arises, requiring extra cash on short notice. If that outlay means selling investments in a bear market, the retiree could be locking in losses that can’t be recovered.
(MORE: Suze Orman's Tough Money Medicine)
DuQuesnay’s firm advises clients to keep six months to one year’s worth of cash on hand for replenishing that stockpile.
People “have a unique ability to suspend common sense, believing that strangers want to let us in on deals that are too good to be true, which of course, are,” says Alan Roth, a financial planner in Colorado Springs, Colo.
He points to several telltale signs that should alert retirees to hang up the phone on a sales pitch. They include: a sense of urgency (“The deal is only good today!”); using a church or fraternal organization to vouch for its credibility or a play on emotions.
Glenn Ruffenach is News Editor at The Wall Street Journal, responsible for the Journal’s coverage of retirement finances and retirement planning.
