15 Costly Retirement Mistakes That Can Keep You Poor (And How To Avoid Them)

RETIREMENT - RETIREMENT PLANNING
Watch out for these spending faux pas so you can hold onto your cash in retirement.
Updated May 8, 2024
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Whether you're planning to retire early or spend many more years on the job, it's crucial to have your finances squared away before your working days are done. 

Retirement can be a wonderful time, but financial missteps can turn it into a struggle. 

Let's look at some behaviors that could trip you up and leave you financially strapped in your golden years.

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Filing for Social Security too early

Rawpixel.com/Adobe Social Security Benefits Form Concept

Social Security plays a crucial role in providing retirement income for most Americans. You can start collecting Social Security as early as 62 years old. However, collecting early reduces the size of your monthly benefit for the rest of your life. 

There are situations where claiming early is the best strategy. But, in many cases, filing for Social Security too early can leave you in financial jeopardy over the long run of your retirement.

If you claim early and then discover later in retirement that you don’t have enough money, you might have to return to work or find other ways to supplement your Social Security.

Selling at market lows

arak7/Adobe for sale sign house

It can be scary to watch your investments lose money when the stock market turns south. You might feel pressured to sell. After all, you are depending on those investments to provide income during retirement.

But selling at market lows is often a devastating mistake. History is full of people who sold when stocks were down and then missed out on a subsequent market rebound.

Failing to create a budget

weedezign/Adobe hand of influencer budget planning for online media advertising

You may have relied on a budget when you were working to help allocate money for food, housing, and utilities, as well as for discretionary spending such as dining out or taking vacations.

It's also important to keep a budget when you are retired. You can even create different budgets to see how potential scenarios — such as market declines or earning extra money through part-time work — might impact your bottom line.

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Not having an emergency fund

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An emergency fund should be an important part of your budget regardless of whether you are working or have retired.

Your emergency fund can be a crucial source of income should you encounter unexpected health issues or home repairs. Without an emergency fund, you could end up depleting your savings faster than you expected.

Not planning vacations wisely

koldunova_anna/Adobe stressing senior man is listening to mobile photone

Retirement is a great time to travel. However, some vacations can be expensive.

If you don’t plan well, you could end up spending more than you anticipated, which can really set you back financially.

Buying expensive gifts for loved ones

Sergey/Adobe burlap with dollar banknotes

Buying expensive gifts for loved ones during birthdays and holidays will always be a temptation, regardless of whether you are working or are in retirement.

However, expensive gifts deplete your savings and can hurt you financially if you're on a fixed income.

Paying too much for medical care

utah51/Adobe stethoscope on banknote medical cost concept

Medical expenses can add up quickly when you're retired, so you need to be prepared financially before you stop working.

Put some money aside for health care, as Medicare does not cover all expenses. Also, consider purchasing long-term care insurance in case you need extra assistance when you're older.

Financially supporting adult children

Reese/peopleimages.com/Adobe bonding outdoor in a park

Paying yourself first is one of the most important rules when it comes to saving for retirement and staying solvent during your golden years.

It can be tempting to help your adult children when they struggle financially. Instead, remember that they have plenty of time to earn money to cover their expenses.

On the other hand, you are less likely to have a robust income during your golden years.

Spending too much on your home

Sechaba/Adobe rustic kitchen with farmhouse sink

Downsizing to a smaller place during retirement can be a great way to save money.

It can be hard to downsize after years of living in a larger home. But remaining in that large abode — or worse, buying something even bigger and more expensive during retirement — can deplete your savings.

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Moving to an area with a high cost of living

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Many people are ready for a change during retirement. They often want to move somewhere warmer.

But keep in mind that you might be in for a bit of sticker shock when it comes to how expensive that new location is.

So, make sure to visit a place before you move there. Do research on how much goods such as groceries and expenses such as utilities are likely to cost you in the new town. Find out how much homes cost and how much you might pay for insurance.

Falling for scams

ronstik/Adobe call from unknown number on smartphone

Retirees are a popular target for scammers. These thieves might try to trick you into giving them your savings.

If something sounds like a scam, it probably is. Make sure to ask questions and don’t give anyone money until you talk to someone you trust, such as a family member or someone at a financial institution.

Not changing your asset allocation

William W. Potter/Adobe financial investment products in a shopping cart

Perhaps you were gung-ho about saving money in a 401(k) during your working years. Maybe you did well and earned big returns on your investments.

But now that you no longer have a regular income coming in, it might make sense to adjust your asset allocation to something less risky.

Markets can be volatile, and it might be harder to recover from market downturns when you don’t have extra years of salary earnings ahead of you.

Forgetting about inflation

Feng Yu/Adobe definition of inflation

Inflation never really goes away. Sometimes — such as now — the problem of rising prices is particularly bad.

Make sure you account for inflation in your budget so groceries, utilities, and health care costs don’t drain your account. Retiring too soon without thinking about the ravages of inflation can set you up for financial failure during retirement.

Not adjusting your plan

Tada Images/Adobe the 401(K) plans page

It's possible that during retirement, you will need to live off your savings and investments for decades. So, it's important to continue to revisit your retirement plans as you adapt to changing realities.

Failing to address market changes and your personal situation could lead you to the poorhouse during retirement.

Spending too much on credit cards

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Credit cards are not necessarily evil. If you use one of the top rewards credit cards responsibly and pay off the balance every month, you can even come out ahead financially by paying with plastic.

However, it’s just as easy to overspend and fall deep into credit card debt. If you are on a fixed income in retirement, it can be especially difficult to dig out of the debt hole.

Bottom line

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As you prepare for retirement, you probably hope your golden years will be exciting. With the right planning, that vision can become a reality.

Just remember that you will need to adjust your lifestyle and spending habits when you switch to a fixed income. Failing to prepare for that reality can lead you straight to the poor house.

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Author Details

Jenny Cohen Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.

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