Once you retire, the financial decisions you make can have a much greater impact on your future. You're not working so you have a finite amount of money that you have to protect. And you don't have as much time to recover if you make a costly error in managing your finances.
The good news is, if you know about some common mistakes, you can often avoid them and preserve your financial security. Here are four errors you'll absolutely want to avoid if you want the future you deserve in your later years.
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1. Withdrawing too much from your savings too fast
Chances are good you're going to be relying on money in a 401(k) or IRA to help support you as a retiree. You want the funds in these accounts to last for your entire retirement, though. That means you can't afford to take out too much too soon. Otherwise your balance will fall so low that you won't have enough invested to help earn returns to replenish it, so you could run out of money very quickly.
You should decide on a safe withdrawal rate before you take any money out. One common rule of thumb, the 4% rule, says you can take funds out equal to 4% of your investment account balance during your first year of retirement and then adjust withdrawals up each year to keep pace with inflation. While this rule has somewhat fallen out of favor, it can give you a good starting point to decide how much you feel is safe to take out.
Once you commit to a safe withdrawal rate, be sure to stick to it. That way, your savings won't run dry later in retirement when it's far too late to return to the workforce.
2. Claiming Social Security at the wrong time
Claiming Social Security at the wrong time is another mistake you don't want to make. You can claim benefits at any time starting at age 62 but every month you wait results in an increased monthly benefit for you and increased survivors benefits for your spouse if you pass away first and were the higher earner.
For most people, waiting not only results in larger monthly checks but also more lifetime retirement benefits because many people outlive the life expectancies that were put in place when Social Security was created. This results in them getting higher benefits for more years than expected.
This isn't necessarily the case for everyone, but unless you have health issues or another specific reason for an early Social Security claim, waiting as long as possible to start getting payments is often your best move.
3. Getting into credit card debt
Getting into credit card debt is another huge error retirees can't afford to make. This doesn't mean you shouldn't use credit cards as they can be a great tool that allows you to earn rewards for purchases you would make anyway. But it does mean you should avoid carrying a balance on those cards.
With an average interest rate of 21.47%, cards make all your purchases much more expensive if not paid off in full each month. You can't afford to chip away at the limited fixed income you have as a retiree just to send costly interest payments to your creditors.
4. Not having the right insurance coverage
Finally, you'll want to make sure you have the right insurance to protect you against financial disaster.
Obviously, this means signing up for Medicare and, most likely, making sure you have a Medigap or Medicare Advantage Plan to help cover the out-of-pocket costs that can be very high with just traditional Medicare alone. But you'll also want to be certain you have the right home insurance and car insurance so you don't get stuck with a deductible you can't afford or expensive repairs for losses that you expected to be covered but aren't.
If you have doubts about whether your coverage is sufficient to protect your assets, it's important to read your insurance policies carefully -- and consider talking with an independent insurance agent who can help you find the right coverage if necessary.
The good news is, all of these errors are easy to avoid now that you know about them so you can take action now to ensure you don't derail your retirement.
