10 Biggest Budgeting Mistakes New Retirees Make

If you want financial security throughout your retirement, you need to make and live on a budget. This will allow you to avoid overspending and running short of funds too soon.

Unfortunately, creating a realistic budget you can live on can be a challenge, as retirees commonly make budgeting mistakes. To ensure you avoid that, be aware of these 10 common errors.

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One of the biggest mistakes new retirees make is not creating a budget at all. Without a budget, you will have no idea of where your money is going and it will be very easy to overspend.

You could also end up using your money in ways that don't provide the maximum value for each dollar. You don't want that to happen when you're on a fixed income.

ALSO READ: Workers Expect to Spend $1.7 Million in Retirement. How Do You Know If They're Right?

Once your paychecks stop, you likely will not be able to maintain the same lifestyle you did when you were working.

Unless you are sure you can afford this without running short, you need to make changes. And the only way you can be sure about what you're able to afford is to make a budget and see how your spending needs stack up against your income.

Don't make the mistake of just continuing to spend as you did before without confirming that doing so makes good financial sense.

One big mistake retirees make is assuming a lot of expenses will just disappear when they stop working. For example, you might think you'll have far lower gas costs once you aren't commuting.

Unfortunately, it's not necessarily the case that you'll automatically be able to spend less on most things as a retiree. You'll need to be realistic in what amounts you allocate in your budget to different expenses, or you won't be able to live on it.

ALSO READ: 3 Tips for Managing Your Spending in Retirement

If you make a budget that you can't live on, it is not really a budget at all.

You should have an idea of where you are starting from, so you don't try to budget far less than you're already spending for things like food and transportation since those can be hard areas to make cuts.

Another common budgeting mistake retirees make is assuming their investments will produce more income than they really do.

You do not want to drain your retirement nest egg and end up with insufficient funds later on. So be sure to set a safe withdrawal rate (such as taking out 4% of your account balance) and then create your budget to fit the income that's available to you.

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Some retirees also make the mistake of assuming Social Security will provide more money than it does. These retirement benefits only replace around 40% of pre-retirement income. And Medicare premiums are typically taken out of them.

Be sure you know what you'll actually receive from Social Security before making your budget so you don't plan to spend more than you'll have coming in.

ALSO READ: Everything You Need to Know About Social Security Benefits

If you always worked for an employer, chances are good that taxes were just taken out of your paycheck without any intervention on your part. As a result, you may not have spent much time thinking about them.

But, as a retiree, you may owe taxes on your Social Security, as well as on some pension and investment income. It will be up to you to find out what you owe and work that amount into your budget.

Many seniors make the crucial error of thinking that Medicare is going to cover all of your healthcare costs.

But the reality is, you can expect to pay a lot of money out of pocket even once Medicare kicks in. You may need to pay premiums for a supplementary policy, as well as cover coinsurance and co-pays for doctor visits, prescription drugs, and outpatient services.

You should have a realistic idea of what your care will cost and work that into your budget because you can't afford to skimp on healthcare.

ALSO READ: How Much Will Healthcare Cost in Retirement? Prepare to Be Shocked

Once you retire, don't make the mistake of assuming you won't need to save money any more. You still need to put cash into an emergency fund and save for big purchases. Work this into your budget so you don't end up in debt when surprise expenses happen.

Finally, it's easy to forget about irregular expenses that only happen periodically. If you do that, you could find yourself facing surprise costs. Check the calendar and past credit card statements so you don't forget to budget for things like holidays, birthdays, and annual or biannual expenses like car insurance bills.

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Making budgeting mistakes early in retirement could cost you your financial security later. It's crucial to avoid these big errors so you can make sure you have plenty of money to last throughout your lifetime.

By making a smart budget, you can spend money guilt-free on the things you value most without worrying about your accounts running dry.

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