For Mark Roberts’ Use: As you know, your retirement fund needs to provide a sufficient income for two or three decades. Budgeting for retirement is no small feat in itself, but there are also many pitfalls you should avoid if you don’t want to lose a significant chunk of your nest egg. The four most common mistakes made by retirees include:
Failing to provide a cushion. Try not to live from one retirement fund withdrawal to the next, maxing out your spending so that nothing is left days before your next “paycheck”. Stretching your budget too thin will ensure problems down the road, because unexpected expenses do pop up from time to time. Just as you did when you were younger, set aside some of your monthly income in a savings account, so that you don’t have to dip into your retirement fund when these expenses arise.
Big purchases. Many retirees want to reward themselves with a large retirement gift. If you’ve planned ahead for that convertible sports car or European vacation, then by all means go ahead! But if it wasn’t part of your original retirement plan, think twice before giving into the temptation to swipe a chunk of your retirement fund for a one-time purchase. You’re not just spending that capital; you’re losing years of interest as well.
Risky investments. The time for high-risk, big-payoff investing was during your working years when you had time to make up for any losses. Many retirees are tempted to gamble a portion of their retirement savings in order to gain a more luxurious standard of living. Often, the opposite happens, and they find themselves scrambling to make ends meet once that money is lost on a risky investment.
Wishful thinking. Some retirees are well aware that they shouldn’t make risky investments at this time. But then they’re presented a “sure thing” investment opportunity with a huge payoff. Since the opportunity is presented as being low risk, it’s temping to jump in headfirst. Retirees should remember to hold onto common sense. If it seems too good to be true, then it isn’t true.