3 Costly First-Year Retirement Mistakes That Lead To Overspending
Retiring is a major accomplishment, but the freedom that comes with leaving the workforce can also lead to costly spending decisions. Financial advisors say many retirees spend more than expected during their first year, which can put added pressure on savings meant to last decades.
Here's how many retirees overspend during their first year out of the workforce.
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They Treat Retirement Like a Vacation
When you're on vacation, it's easy to get into a "treat yourself" mindset. But retirement is not the same as a vacation.
"A common error that individuals regret later in retirement is treating the initial stage of retirement as a yearlong vacation and spending in excess," said Jero Mouradian, financial planner at Sentinel Group.
They Don't Set or Stick To a Retirement Budget
During the first year of retirement, retirees may lack a spending budget — or simply ignore it if they do have one.
"The biggest mistake we see is that people finally have time, so they travel, renovate the house, buy the boat, help the kids and check every item off the bucket list in the first year," said Stephen Vecchione, certified financial planner (CFP) and managing partner at Statera Advisors.
After the initial excitement wears off, many retirees discover they spent more than planned because they never established clear spending limits.
They Assume Spending Will Drop
Front-loading spending in the early years is a common retiree regret.
"The assumption is that spending will naturally reduce over time," said Connor Anderson, CFP and lead financial advisor at Aspyre Wealth Partners. "However, that is not always the case — then, the large withdrawals taken early in retirement can affect long-term portfolio stability."
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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