Once you've left the workforce, making smart financial decisions becomes even more crucial. That's because you have less time to recover from mistakes and you might have more-limited income than you did while still getting a paycheck.
Unfortunately, seniors sometimes make costly errors that come back to haunt them. Here are three common mistakes you'll want to avoid if you hope to have enough money to live a life of comfort in your later years.
1. Living beyond your means
You want to enjoy retirement, but it's crucial you don't spend so much money doing it that you deplete your nest egg too quickly.
It's easy to get caught up with spending on travel and hobbies during the early years of retirement when you're getting used to your newfound freedom. Unfortunately, you could be faced with expensive and unavoidable healthcare costs later in life, and you could really come to regret spending too much too soon if you don't have anything left to cover them.
2. Not thinking long term
Most people spend decades in retirement, so all of the decisions you make about your financial future need to be made with a focus on the long term.
For example, while it may be tempting to claim Social Security as soon as you become eligible for benefits at age 62, you should be aware that doing so would shrink the size of your monthly checks for the rest of your life. It would likely also leave you with less lifetime income, and could potentially put your spouse at risk of a shortfall if you shrink survivor benefits with an early claim.
Whether you're making a decision about filing for Social Security benefits, choosing where to live, or deciding on your withdrawal rate from your retirement investment accounts, don't think about what's right for the next few years. Instead, consider how the decisions you're making will affect the rest of your life.
3. Not paying attention to your investments
Throughout your career, you were probably focused on growing your retirement nest egg. You'll need to make a big shift in your mindset once you begin making withdrawals. But you can't lose sight of the fact that you still need your money to earn a reasonable rate of return so that your accounts don't run dry too quickly.
That means you still must pay attention to what you're invested in and ensure you have a diversified portfolio, that you're exposed to the right level of risk, and that you aren't paying more fees than you need to.
Retirees generally need to shift to a more conservative investment mix because they have less time to recover from market downturns. But they still should have some money invested in the stock market, so they should spend some time researching investments.
The good news is, if you monitor your portfolio, think long term, and live on a budget that enables you to maintain a safe withdrawal rate, you can hopefully be financially secure for the rest of your life. You just need to avoid these three retirement mistakes to help make that happen.