If you're gearing up to retire in 2022, you may be growing increasingly excited about that prospect by the day. But the decisions you make early on in retirement could determine how financially secure you are throughout your senior years. And you'll definitely want to make sure to steer clear of these mistakes.
1. Not sticking to a budget
Many people assume that their living costs will shrink once they retire. But actually, you may be surprised at how they largely stay the same. This especially holds true if you've been working remotely during the pandemic and therefore haven't been spending money on commuting costs.
That's why it's so important to set up a budget at the start of your retirement. Figure out what your various monthly expenses look like, and then make sure you can swing them based on your income.
Keep in mind that inflation is making everyday expenses cost a lot more money these days. Hopefully, that will ease over time, but you'll need to be extra careful in light of it. The good news, though, is that if you work your budget around higher living costs, you'll get more breathing room once consumer prices start to come down.
2. Withdrawing from your nest egg without thinking things through
Ideally, you'll enter retirement with a nice chunk of savings in a 401(k) or IRA. But don't start withdrawing from your savings without mapping out a strategy. If you withdraw too aggressively from your nest egg early on, you could end up in a situation where you've depleted it prematurely.
Furthermore, unless you have your savings stashed away in a Roth 401(k) or IRA, any withdrawal you take will have tax implications. You'll need to plan for an IRS bill when removing that money.
3. Assuming you should file for Social Security right away
Some people sign up for Social Security the moment they leave the workforce. But if you don't need your benefits immediately to cover your living costs, you may want to hold off on claiming them, especially if you haven't yet reached full retirement age.
In fact, for each year you delay your filing past full retirement age, your benefits will get an 8% boost that will remain in effect for the rest of your life. And that boost could come in handy if your investment portfolio underperforms or your living costs increase at a faster rate than expected.
Once you've set up your retirement budget, it should be easier to see whether you can hold off on claiming Social Security or not. And remember, if you're married, you and your spouse don't have to file for benefits at once. You could make the decision to have one person sign up immediately while the other set of benefits grows.
Start retirement off right
The choices you make early on in retirement could set you up for many years of financial security. Avoiding the above mistakes could be your ticket to meeting your goals without being held back by money-related worries.