15 Mistakes New Retirees Need to Avoid

When you are retired, it's especially important to make smart financial decisions. It's not easy to rebuild if you drain your nest egg or otherwise end up with too little income because of the choices you've made.

The good news is, avoiding common errors is easy if you know what they are. Here are 15 mistakes you should be certain not to make as a new retiree.

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As a new retiree, you may want to claim Social Security benefits, but you don't necessarily have to do so right away.

Your Social Security benefits are likely going to help you cover your retirement costs, so you don't want to inadvertently make choices that reduce your benefits. That's why it's so important to understand how your retirement payments are calculated.

Specifically, you receive benefits equaling a percentage of average wages as calculated based on the 35 years your inflation-adjusted earnings were highest.

If you don't know how the formula works, you might make a mistake like retiring with less than a 35-year work history when you could have kept working. This could substantially reduce your average benefit.

ALSO READ: What's the Social Security Benefit Formula?

Workers eligible for Social Security have all been assigned a full retirement age, or FRA, which is based on when they were born. FRA is between 66 and four months and 67.

When you claim benefits relative to FRA affects the income that Social Security will provide, so you need to understand when your full retirement age is and what happens if you start checks sooner or later.

Early filers can claim benefits as soon as age 62, but they get hit with penalties that reduce monthly checks for each month they receive a payment prior to FRA. Delayed claimers, on the other hand, can increase their benefit amount until age 70 but will miss months or years of payments in order to do so.

The only way to get your standard benefit is to claim retirement benefits right at FRA. As a new retiree, think carefully about the impact of claiming benefits now so you can decide if doing so is right for you.

There are dozens of different Social Security claiming strategies for married couples.

For example, the higher earner could put off filing for benefits to max out his or her monthly income, as well as to increase future survivor benefits. Or if one spouse isn't eligible for benefits on his or her own work record, the other could claim benefits ASAP to make spousal benefits accessible.

It's important to work together with your partner to decide which approach is right for you given how much you each earned, your retirement plans, and your financial goals. Do this as a new retiree before filing for Social Security payments to begin.

ALSO READ: Married? Here Are 3 Social Security Rules You Need to Know

If you claim Social Security benefits but hope to work part-time or full-time as a new retiree, you could forfeit some or all of your benefits temporarily.

This is a risk if you haven't yet reached full retirement age and you're earning income while getting benefits. You'll want to make sure you know exactly when payments start to be reduced, as the earnings thresholds change annually.

If you are newly retired and hoping to rely on Social Security to cover most or all of your expenses, this could be a big problem. That's because benefits are meant to only replace about 40% of pre-retirement income, and that's not a sufficient amount to live on comfortably.

Confirm how much your benefit will be ASAP upon retiring and make sure that you have enough other funds to supplement it and support yourself. If you discover your checks are insufficient, you'll need to make swift changes such as going back to work or downgrading your lifestyle to reduce your cost of living.

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Chances are good you'll have to start withdrawing money from savings once you have retired. But you don't want to take out too much -- especially early on as a new retiree

Before you request even one distribution, calculate a safe withdrawal rate. One good rule of thumb is to take out 4% or less of your invested balance in your first year of retirement and then increase future withdrawals based on the inflation rate.

ALSO READ: With Perpetual Withdrawal Rates, Your Money Can Last Forever

Your lifestyle will change now that you've left the workforce, and you need a budget.

By making a budget, you can allocate where your money should go and determine how much to devote to each expense. As part of this process, you can make sure your money will stretch far enough and can make changes if you discover that you're overspending and in danger of draining your nest egg.

Some new retirees assume their days of requiring an emergency fund are over since they are unlikely to lose their job or experience another big unexpected decline in income.

But the reality is that surprise expenses can still crop up. And you don't want to make a big withdrawal from your retirement accounts to pay them. To make sure that doesn't happen, work on building up an emergency fund ASAP after retiring if you don't already have one.

ALSO READ: What Is an Emergency Fund and Why Do You Need One?

Medicare eligibility starts at 62. If you wait to sign up for certain Medicare programs, you could get hit with penalties that last for the rest of your life.

You don't want to delay getting insurance coverage -- especially since doing so could cost you later. So be sure you know Medicare rules as a new retiree and that you take action on schedule.

When you've just retired, you may not be familiar with all the insurance options for seniors.

Obviously, you'll likely have Medicare coverage if you are 65 or older. But you may wish to opt for Medicare Advantage instead of traditional Medicare. Or you might decide to buy a Medigap plan to supplement your Medicare coverage.

You should explore all these options ASAP after leaving work because you can only make changes to your coverage at certain times of the year.

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One huge mistake new retirees make is assuming Medicare covers every service they need. This simply isn't the case.

There are plenty of exclusions, including for hearing aids, dental care, and long-term care. And there are also coinsurance costs, including 20% coinsurance for most outpatient medical services.

You'll want to be realistic about your options for paying for care, so be sure to read the fine print and learn the ins and outs of Medicare ASAP.

ALSO READ: 3 Strategies to Make the Most of Medicare

Social Security benefits can be taxed on the federal level once your income hits a certain threshold -- and that threshold isn't very high. A minority of states also tax Social Security benefits. And you may owe tax on your pension and retirement account distributions as well.

All of these tax obligations are new as a retiree and differ from the rules when you were working. It's up to you to learn them so you'll know what to expect for your after-tax income.

Chances are good your employer submitted taxes to the IRS on your behalf while you were working. But as a retiree, you need to make sure you pay your tax bill as income comes in so you can avoid penalties.

This may mean having taxes withheld from Social Security, pension checks, and retirement account distributions. If you don't do that or if the amount withheld isn't enough, you might have to pay quarterly estimated taxes.

Not taking care of your tax obligations could lead to hefty penalties and is a huge mistake.

ALSO READ: Understanding Taxation of Your Retirement Income

Without work to structure your life, it's easy to waste your days in retirement or even to fall into depression. Don't make the mistake of letting these years pass without a plan.

Think about how you want to spend your time and take concrete steps to make that happen, including working your budget around desired expenditures such as travel costs.

Finally, you need to make sure that you think about what retirement will look like 5, 10, 15, and even 20 years down the line.

It's easy to make the wrong choices early on, such as claiming Social Security right away or withdrawing too much from your investment accounts. But you could regret these choices later if you don't look at the big picture. You don't want that to happen to you.

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After you work hard your whole life, you deserve to enjoy your later years. Unfortunately, you can't do that if you don't have enough money to cover the bills or a plan for how to spend your days.

By avoiding these 15 errors, you can make sure your retirement is enjoyable and free from serious financial concerns.

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