You'd think that by the time a person hits retirement age, they'd have the whole "personal finance thing" figured out. But it's easy to slip into bad financial habits, regardless of age and experience. If any of the following habits hit a little too close to home, don't worry. There are simple steps you can take to reverse them.
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Obsessing over the market and your portfolio
One of the best things about retirement (or so I hear) is letting go of life's daily stressors. If you find yourself visiting your portfolio a little too often due to anxiety, it's probably not a good thing. Here's why: Anxiety can derail your retirement plan by driving you to make emotional decisions when the market is wonky (and the market will be wonky at times).
In 2008, when stocks dropped by nearly 40% and portfolios lost more than a third of their value, fear drove many investors to drop out of the market in search of "less risky" investments. While it's easy to understand why they might have done so, those same investors lost more than they would have if they'd allowed their investments to remain where they were. That's because those who stuck with the market benefited when it began recovering in 2009, and they (and their portfolios) enjoyed one of the longest and strongest market recoveries in history.
An easy fix: If you obsess over the market and your portfolio, scale back. While a thorough review of your portfolio should be conducted at least once a year, quarterly "check-ins" are enough to inform you of how the financial markets are doing and how your investments are faring.
Paying more than necessary in taxes
It's fair to assume that no one, including you, enjoys paying taxes. And you sure don't want to pay more than you must. However, withdrawing money from multiple retirement accounts can affect your tax bill.
Each type of retirement account has its own tax treatment, so where you withdraw money from matters at tax time.
An easy fix: Consider a strategic withdrawal plan that fits your financial situation. Let's say you have funds in a 401(k) and a Roth IRA. Since you could contribute to your 401(k) pre-tax (meaning you didn't pay taxes on the money at that time), taxes are due when you make withdrawals. On the other hand, contributions to your Roth IRA were made with earnings you'd already paid taxes on, so no taxes are due upon withdrawal.
In years when you expect your income to be higher than usual, you might draw from your Roth IRA to reduce your overall tax bill.
Overlooking healthcare costs
You may be bored senseless by the number of times you've heard warnings about healthcare costs in retirement, so my apologies for bringing the subject up again. However, Fidelity Investments' 24th annual "Retiree Health Care Cost Estimate" reveals that one in five Americans have never considered how much those costs might be. That's a whole lot of people who could be surprised by spending an average of $172,500 on medical expenses throughout retirement.
An easy fix: If you haven't prepared for the potential cost of healthcare in retirement, make an appointment with a financial advisor who can help you determine the best way to ensure the funds will be available when needed. That may mean moving some money around or opening a new investment account, but whatever the solution, looking into it now is a smart move.
Whether you start early or find yourself playing catch-up toward the end of your career, you can spend years planning for retirement. Once there, the goal is to make moves that preserve enough of your wealth to allow you to remain comfortable and live the life you planned for.
