12 Money Traps That can Derail Your Retirement

There are financial hazards in every chapter of life. Here’s how to avoid the ones that are specific to retirement.

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Updated June 6, 2024
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Retirement should be an exciting time. You can finally pursue your passions, and there's no need for an alarm clock. But if you don't plan for retirement carefully, it can be a scary time too.

Whether you're nearing retirement age and need to grow your wealth or have already left work behind and are looking to save, avoiding the following money traps is essential.

Here are 12 money traps that are easy to fall into and can absolutely ruin your retirement plans.

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Not changing your spending habits

aletia2011/Adobe senior woman at store holding clothes to buy while checking more dresses on display

When you enter retirement, you’re entering a new chapter in your life. For most people, the latest chapter comes with a new budget.

Typically, the household budget is smaller than the one you had before, especially if you want to do some extra things, like traveling or picking up that hobby you’ve been wanting to try.

This doesn’t mean you won’t be able to enjoy life, but it might mean you need to adjust your spending.

Not planning for the longevity risk

Victor Koldunov/Adobe senior man sitting at table calculating bills on calculator with laptop at home

The "longevity risk" is the risk that you might outlive your money. Most people would never complain about having a long and healthy life, but it can be stressful if you're worried your money might run out.

Here's the thing to do: Plan ahead and ensure you're comfortable with your asset allocation and investment accounts. During all chapters of life, peace of mind is priceless.

House repairs

kinomaster/Adobe senior woman standing in room doing ok gesture with hands with room getting painted in background

According to data from the Federal Reserve, 85% of adults 60 and older own their homes. In other words, most retirees are homeowners. 

If you don't prepare for expensive house repairs, you might be setting yourself up for a money trap. With homeownership, it's not if something will break — it's when it will happen.

You can lower your financial stress by having a fund set aside for just those emergencies.

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Unplanned moves

PintoArt/Adobe senior couple at home holding a yellow sculpture of house with keys

Moving can be expensive. Some retirees move before they retire but might find that they don't enjoy their new location. 

Others would prefer to stay put but need to move closer to family. Whatever the case, be sure to prepare ahead of time.

Time to prepare can lead to better deals on movers, moving supplies, and storage. Plus, if you're selling your home, you'll need time to list it and secure the best offer.

Not preparing for health care costs

NINENII/Adobe senior lady in clinic getting examined by doctor using stethoscope

Health care costs are a fact of life, so preparing for them is essential. If you don't prepare for this retirement expense, it could derail your entire budget.

But here's the thing — it doesn't have to be stressful. Ensure you know how much to budget each month and that you've checked if you qualify for discounts or additional help with payments.

Expensive long-term care

Tamani Chithambo/peopleimages.com/Adobe happy senior woman sitting in wheelchair grateful for her husband and female nurse

It's not fun to think about, but long-term care is a fact of life for many retirees. The tricky thing about long-term care is that you often don't know if you'll need it ahead of time.

Because of that, it might be better to err on the side of caution and financially prepare. The worst-case scenario is that you'll have to set aside extra money and spend it on something else.

Improper asset allocation

luengo_ua/Adobe handsome and stylish senior man standing in front of gray background holding money with card

It can be challenging to figure out asset allocation in retirement. Cash accounts are liquid and safe, whereas investments in stocks and bonds are riskier but earn more returns.

You want to have enough in cash but not too much in cash. It can be a tricky balance to strike.

Regardless of the mixture you choose for your investments, consider setting aside enough for emergencies and unexpected expenses to avoid debt.

Investment account fees

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Account fees are often hidden in the fine print. So if you're unsure how much you pay in fees, you're not alone. Take some time to figure out the costs for all your accounts.

Investment advisers managing your accounts usually charge a percentage of assets under management.

If the fees seem high, switching accounts might be a good idea. But before you do so, meet with your financial advisor so you understand any tax implications.

Waiting too long to start saving

Syda Productions/Adobe senior couple sitting at table with calculator counting money while reviewing bill in hand

This is a pre-retirement tip. You can't go back in time and convince your younger self to start saving for retirement. But you can double down and focus on it today.

If you're eligible, take advantage of catch-up contributions for your retirement accounts and figure out how much you need for a comfortable retirement.

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Supporting family if you can't afford it

Syda Productions/Adobe happy family of senior lady daughter and baby spending time together on sofa at homes

If you're used to financial caretaking, it can be easy to continue to do so in retirement. After all, it's wonderful to take care of your family members. 

But supporting family members can harm your financial health if you can't afford to do so.

Make sure that you're focusing on your own finances first. For example, it's usually a good idea to pay off your debt and create an emergency fund. Once you take care of yourself, you'll be better able to support others.

Being isolated from support

aletia2011/Adobe senior man thinking about his pension while standing outdoor in garden with flowers in background

It's difficult to be isolated from family and friends, both emotionally and financially. And when you feel lonely, you may spend more money or make careless financial decisions. 

Make sure that your support network is robust in retirement. You'll probably find that your mental, physical, and financial health improves when it is.

If you don’t or can’t live near friends and family, get involved with your community by volunteering at a school, library, or hospital. You’ll be doing yourself — and someone else — a lot of good.

Not considering inflation

Nishi Sharma/Adobe senior man looking at utility bills and covering face in terror

If it seems like items are more expensive than they were when you were a kid, it's because they are. Prices rise over time, as a rule, and sometimes quite suddenly.

It's essential to prepare for inflation in retirement and the rising cost of goods, especially if you look forward to a long retirement.

One way to prepare is to make sure that you're avoiding wasting money so there is room in your budget for everything being a bit more expensive.

Bottom line

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You look forward to retirement all your life, and you want to be able to enjoy it. 

Whether you're right on pace for a normal retirement or you want to retire early, making the right plan can create a world of difference in your post-retirement life.

There are a lot of potential pitfalls in retirement, too. But if you prepare and watch out for money traps, it can be a time of peace, relaxation, and growth. Preparation is the gift that keeps on giving.

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