Congratulations -- after years of plugging away on the job, you're finally free. Retirement is an exciting period of life to kick off, but the last thing you want to do is start out on the wrong foot. You'll therefore need to steer clear of these mistakes that could turn an otherwise positive milestone into a negative.
1. Not following a budget
Just like you need to follow a budget during your working years, you should also plan on having one during retirement -- especially if you don't expect to work in any capacity, and will therefore be living off savings and Social Security. Of course, the tricky part about setting up a budget for your golden years is that you may not have a handle on all of your expenses right away. Sure, you might know how much your car insurance costs, or what your cable bill entails. But what about expenses like home maintenance and healthcare that are largely unpredictable?
Your best bet, therefore, is to take some educated guesses. For example, the average homeowner spends 1% to 4% of their home's value on maintenance annually. If your home is older, veer toward the higher end of that range and see where that leaves you.
Estimating your healthcare costs is even trickier, but you can start by factoring your monthly Medicare premiums (including the cost of supplemental insurance, if you have any) and prescription copays into your budget. From there, you can add a modest amount of money each month to allow for as-needed doctor visits, and adjust that number down the line if you see that it's really off.
The key is to get a handle on your spending early on. This way, if you see that certain expenses are costing you more than anticipated, you can compensate by cutting back in other areas.
2. Withdrawing too aggressively from your nest egg
Seniors are living longer these days, and if you retire in your 60s, there's a good chance you'll need your savings to last around 30 years. But if you withdraw too much money from your nest egg early on, you'll risk running out of money later on in retirement, and that's a dangerous position to be in. Therefore, you'll need to devise a withdrawal strategy that gives you access to the income you need without going overboard.
For years, financial experts have been advocating the 4% rule, where you start by removing 4% of your savings balance your first year of retirement, and then adjust subsequent withdrawals for inflation. The rule isn't perfect, but it's a decent starting point.
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That said, if you retire on the earlier side (meaning, in your 50s), you may need to go with a more conservative withdrawal rate -- say, 2% or 3%. And on the flip side, if you retire later, 5% a year might be fine. Just don't get too aggressive early on, or you'll risk depleting your nest egg before you know it.
3. Letting yourself get bored
There's a reason why retirement increases your chances of being diagnosed with depression by 40%, according to the Institute of Economic Affairs -- too much free time on your hands can quickly lead to feelings of worthlessness and restlessness. The less bored you are, however, the less likely you are to get down, so to this end, it pays to map out a schedule that keeps your days occupied.
In this regard, the possibilities are truly endless. You can volunteer two days a week for a local organization, have one museum outing a week, and spend another day doing projects at home. If you have friends in the area, be social. Start a book club, a hiking club, or a recipe club. Or, sink some hours into the creative project you imagined but never had time for during your working years, whether it's the novel you always wanted to write or the photo album you wanted to compile.
Furthermore, if you find that you're not filling your days adequately, get yourself a part-time job, even if you don't particularly need the money. It's a better bet than staring out the window or watching mindless TV.
You deserve to start off your golden years on a positive note. Avoid these mistakes, and you'll set the stage for a happy, fulfilling retirement.
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