People in their 60s often face the decades in two parts: the run-up to retirement and retirement itself. Although retirement may have a date on the human resources calendar, it can—and perhaps should—involve years of transition. To navigate both phases of this important decade, here are the biggest financial mistakes to avoid in your 60s, according to financial experts.
1. Not planning how they will spend their time in retirement
David Edmisten, CFP® and founder of Next Phase Financial Planning, LLC, says retirement represents an opportunity to find or renew personal purposes outside of work.
“Whenever anybody hears about retirement planning, they usually think of numbers, like what are my investments doing? What’s the market doing? Have I saved enough? Will I run out of money?” Edmisten says. “Those are all super important questions, but a lot less time is spent on how will I find fulfillment?” Having community and a sense of purpose is associated with longer lives. He advises clients to spend more time considering how they will spend their time, which, of course, also has financial impacts.
For example, if people decide to consult in their field after retirement and/or to work part time in another career, their earnings could keep them from drawing upon their retirement funds for a while—or it could lead to penalties if they’ve started drawing on Social Security then decide to go back to work. If clients relocate to an area with a higher cost of living to be closer to children or friends, they could draw upon their retirement funds faster than expected. And the same could be said if they decide to take up an expensive hobby to fill the time they previously devoted to work. Thinking about where they plan to live and how they plan to spend their time helps people transition into retirement emotionally, physically, intellectually—and financially.
2. Not enjoying their leisure years
Emily Rassam, CFP® and Senior Financial Planner for Archer Investment Management, has found that many clients avoid withdrawing their retirement funds.
“They’ve been in this accumulation mode of building up their assets,” she says. “Then, all of a sudden, they have to turn the spigot on and start to take money out. And that’s a really scary experience.” The fear of spending too much or too soon keeps people from spending. In the process, many miss out on travel, hobbies or experiences they wish to pursue because their health declines too much, Rassam says. To feel comfortable spending, Rassam helps people find their “number,” in other words, the ideal amount to save for retirement.
3. Following blanket guidelines for retirement age
Some people choose to retire at 65 because that’s when they become eligible for Medicare. While others, mainly if they were born after 1960, delay until age 67 because they can tap into their full Social Security benefits. However, these benchmark ages may not serve everyone’s circumstances.
“Everyone’s financial situation is different,” Rassum says. “Some people are perfectly fine to retire at 60. Maybe they worked longer than they really needed because they were ‘supposed to.’ And some people need to work longer, so 65 or 67 might not be the best date for them.” Instead, she advises soon-to-be retirees to work with a financial planner to determine the best age based on their circumstances.
4. Believing everyone has the same “number” for retirement savings
Although there are many blanket assessments of how much money people should have for retirement, Rassum says this number is a highly individualized calculation. Financial planning aims to determine “the number” people need to cover their long-term expenses, health care and goals.
5. Not having a diversified tax strategy
Edmisten says people retiring are so focused on accumulation that many need to think about how taxes will affect those funds when withdrawn.
“Typically, you’re at your highest earnings before you finish your career. While you’re retired, you’re probably going to have some of the lowest earnings of your life,” he says. However, when people reach 73, they must begin taking Required Minimum Distributions (RMDs) from their retirement accounts. (The amount is determined by age and life expectancy.) Those withdrawals can mean big money—and a significant shift into higher tax brackets. That leaves many people paying unexpected amounts to the government rather than spending their savings on their leisure years.
To avoid overpaying taxes, Edmisten recommends that clients invest funds in multiple tax buckets in the years leading up to retirement. While many people have most of their pre-tax funds in 401(k)s, he also advises putting after-tax dollars in an IRA, as well as a taxable brokerage account that doesn’t have limits on what they save or have minimum withdrawals at a certain threshold.
“Having those three buckets set in place before you get to retirement gives you all these different levels you can pull so that you can manage your taxes more effectively,” he says. If people don’t plan their tax strategies before retirement, they can often shift or convert funds in the years right after it.
6. Not accurately budgeting for giving
While everyone’s philanthropic and legacy gifts are individual decisions, being too generous can become problematic.
“It can actually blow up some retirement budgets if it’s done too frequently or without proper consideration,” Edmisten says. He advises clients to budget for giving, whether that means giving gifts while they’re alive (the IRS allows for tax-free gifts up to $18,000 a year) or setting aside funds for inheritances. “You want to take care of yourself and meet your own needs first and let others come second. Not in a selfish way, but it just doesn’t make sense to give so much that now you’re under pressure on your yearly expenses,” he says.
7. Not budgeting for medical expenses
Although Americans 65 and older qualify for Medicare, retirees must also pay for additional insurance for benefits not covered under their primary plans, such as prescription drug coverage and dental, hearing and vision care. Additionally, they must cover out-of-pocket expenses. With rising health care costs—and growing health concerns as they age—the typical couple aged 65 who retires in 2023 can expect to spend $315,000 on health care. Not having enough saved for these expenses can dramatically affect retirement.
8. Being too aggressive or too conservative with your investments
Retirees may live 20 to 30 years after they stop working—so retirement doesn’t mark the conclusion of wise investing. Rassam says some clients have their 401(k)s in the same funds as when they opened the accounts 30 years ago, funds that are probably too aggressive for their age. At the same time, other clients are too conservative.
“They get off the highway altogether and stick their money in a safe investment that’s not going to keep up with inflation,” she says. Many retirees can take a lesson from Goldilocks. “The majority of retirement investors are somewhere in a moderate portfolio, trying to keep up with inflation but reduce the risk level and therefore the volatility and stress because one of the top things clients seek in retirement is peace of mind.”
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